ANNUAL
5
1
0
2
REPORT
DISCIPLINED INVESTING
CAPITAL PRESERVATION
COMMERCIAL FINANCING
RESIDENTIAL FINANCING
BRIDGE FINANCING
STRUCTURED REAL ESTATE FINANCING
MORTGAGE INVESTMENT CORPORATION
Annual Report Cover_2016.indd 1
11/04/2016 12:32:13 PM
MORTGAGE INVESTMENT CORPORATION
PROFILE
Firm Capital Mortgage Investment Corporation, through its Mortgage Banker, Firm Capital Corporation, is
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MORTGAGE BANKER PROFILE
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Where Mortgage Deals Get Done®
CONTENTS
CONTENTS
Letter To Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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2
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . .
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Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . 21
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Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Balance Sheets(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:21)(cid:19)
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Statements of Income(cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:21)(cid:20)
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . 25
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Statements of Changes in Shareholders Equity . . . . . . . . . . . . . . . . . . 26
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:41)(cid:79)(cid:82)(cid:90) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) 23
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Notes to Financial Statements(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3)(cid:17)(cid:3) (cid:21)(cid:23)
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Performance Graph(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:17) (cid:23)(cid:22)
Dividend Reinvestment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
LETTER TO SHAREHOLDERS
We are pleased to report to you on the 2015 results for Firm Capital Mortgage Investment Corporation
(the “Corporation”) .
Over the course of 2015, the Corporation had investment repayments of $285 million, which is equivalent to
83% turnover in the portfolio . This turnover fueled a record year of investment activity, with $345 million in
capital deployed, resulting in year-over-year portfolio growth of 17% .
Managing risk and maintaining a strong balance sheet is our main priority . We mitigate risk by maintaining
a diversified portfolio that has the majority of the investments shared with other syndicate partners. We are
continuously monitoring all markets and rebalancing the portfolio to reflect the current environment and market
conditions. In 2015, we were able to generate dividends to Shareholders of $0.991 per share, while significantly
adding to the size of our loan loss provision by $870,000, bringing the year-end balance up to $4,230,000,
representing 1 .05% of the gross portfolio .
HIGHLIGHTS
INCREASED DIVIDENDS
For the year ended December 31, 2015, the Corporation declared dividends totaling $0 .991 per share versus
$0 .970 per share for the year ended December 31, 2014 . The December 2015 special dividend was 5 .5 cents
per unit .
STRONG INCREASE IN PROFIT
Income and profit (referred to herein as “Profit”) for year ended December 31, 2015 of $20,081,258 represents
a 3% increase over the 2014 Profit of $19,510,113. Basic weighted average profit per share for the year ended
December 31, 2015 was $0 .991, which is slightly higher compared to the $0 .976 per share reported for the year
ended December 31, 2014 .
DIVERSIFIED PORTFOLIO WITH A SIGNIFICANT 17% YEAR OVER YEAR GROWTH
The Corporation’s Investment Portfolio at December 31, 2015 totaled $402 .9 million (before impairment
provision) consisting of 225 separate investments . The average interest rate on the Corporation’s investments
at December 31, 2015 was 8 .19% per annum . The Corporation’s portfolio increased by $60 .1 million during the
year .
VERY SHORT TERM PORTFOLIO WITH HUGE ANNUAL TURNOVER
In 2015, the Investment Portfolio repayments totaled $285 million with new investments during the year totaling
$345 million. This turn is the key to our investment approach and demonstrates the short term bridge financing
nature of the portfolio .
ELI DADOUCH
President
Chief Executive Officer
JONATHAN MAIR
Senior Vice-President
Chief Financial Officer
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
1
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OUR BUSINESS
Firm Capital Mortgage Investment Corporation (the “Corporation”) is a non-bank lender, investing
predominantly in short-term residential and commercial real estate mortgage loans and real estate
related debt investments. The Corporation operates as a mortgage investment corporation under
the Income Tax Act (Canada). Mortgage investment corporations have no income tax payable
provided that they satisfy the requirements in subsection 130.1(6) of the Income Tax Act
(Canada).
The Corporation’s primary investment objective is the preservation of shareholders’ equity, while
providing shareholders with a stable stream of dividends from the Corporation’s investments. The
Corporation achieves its investment objectives by pursuing a strategy of investing in loans in
select niche real estate markets that are under-serviced by larger financial institutions. The
Corporation’s more specific objective is to hold an Investment Portfolio that:
(i)
(ii)
(iii)
(iv)
is widely diversified across many investments;
is concentrated in first mortgages;
reduces exposure as a result of participation in various loan syndicates; and
is primarily short-term in nature.
Firm Capital Corporation (the “Mortgage Banker”) is the Corporation’s mortgage banker and acts
as the Corporation’s loan originator, underwriter, servicer, and syndicator. The Corporation’s
affairs are administered by FC Treasury Management Inc. (the “Corporation Manager”).
The Corporation has in place a Dividend Reinvestment Plan (“DRIP”) and a Share Purchase Plan
(collectively, with the DRIP, the “Plans”) that are available to its shareholders. The Plans allow
participants to have their monthly cash dividends reinvested in additional common shares of the
Corporation (“Shares”) and grant participants the right to purchase additional Shares.
Shareholders who wish to enroll or who would like further information about the Plans should
contact Investor Relations at (416) 635-0221.
Additional information on the Corporation, its Plans, and its Investment Portfolio is available on
the Corporation’s web site at www.firmcapital.com. Additional information about the Corporation,
including its Annual Information Form (“AIF”), can be found on the SEDAR website at
www.sedar.com.
BASIS OF PRESENTATION
The Corporation has adopted International Financial Reporting Standards (“IFRS”), as issued by
the International Accounting Standards Board, as its basis of financial reporting. The Corporation’s
functional and reporting currency is the Canadian dollar.
The following discussion is dated as of March 29, 2016 and should be read in conjunction with
the audited financial statements of the Corporation and the notes thereto for the years ended
December 31, 2015 and 2014, as well as Management’s Discussion and Analysis, including the
section on “Risks and Uncertainties”, along with each of the quarterly reports for 2015 and 2014.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 2
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Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
HIGHLIGHTS
INCREASED DIVIDENDS
For the fourth quarter and year ended December 31, 2015, the Corporation declared dividends
totaling $0.289 and $0.991 per share versus $0.268 and $0.970 per share for the fourth quarter
and year ended December 31, 2014. The December 2015 special dividend was 5.5 cents per
share.
STRONG INCREASE IN PROFIT
Income and profit (referred to herein as “Profit”) for the quarter ended December 31, 2015
increased by 9% to $5,376,207 as compared to $4,942,120 for the same period in the prior year.
Profit for the year ended December 31, 2015 of $20,081,258 represents a 3% increase over the
comparable year ended 2014 profit of $19,510,113.
Basic weighted average profit per share for the quarter ended December 31, 2015 was $0.265,
which is 8% higher than the $0.245 per share reported for the three months ended December 31,
2014. Basic weighted average profit per share for the year ended December 31, 2015 was $0.991,
which is slightly higher compared to the $0.976 per share reported for the year ended December
31, 2014.
SIGNIFICANT 17% YEAR OVER YEAR PORTFOLIO GROWTH
The Corporation’s investment portfolio (the “Investment Portfolio”) as at December 31, 2015
increased by $60.1 million to approximately $402.9 million as compared to $342.8 million as at
December 31, 2014 (before the impairment provision of $4.23 and $3.36 million respectively).
VERY SHORT TERM PORTFOLIO WITH HUGE ANNUAL TURNOVER
In 2015, the Investment Portfolio repayments totaled $285 million with new investments during
the year totaling $345 million. This turn is the key to the Corporation’s investment approach and
the measure of its success.
RETURN ON EQUITY
The Corporation continues to exceed its yield objective of producing a return on shareholders’
equity in excess of 400 basis points over the average one year Government of Canada Treasury
bill yield. Profit for the quarter ended December 31, 2015 represents an annualized return on
shareholders’ equity (based on the month end average shareholders’ equity in the quarter) of
10.18%, representing a return on shareholders’ equity of 969 basis points per annum over the
average one year Government of Canada Treasury bill yield of 0.49%.
INVESTMENT PORTFOLIO
The Corporation’s Investment Portfolio totaled $398,689,638 as at December 31, 2015 (net of an
impairment loss provision of $4,230,000) as compared to $339,505,051 (net of an impairment
loss provision of $3,360,000) as at December 31, 2014, representing an increase of approximately
$59.2 million. The December 31, 2015 Investment Portfolio is comprised of 225 investments (177
as at December 31, 2014). The average gross investment size (excluding impairment loss
provision) was approximately $1.8 million with 7 investments individually exceeding $7,500,000.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 3
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
3
Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Amount
$0 - $2,500,000
$2,500,001 - $5,000,000
$5,000,001 - $7,500,000
$7,500,001 +
Number of
Investments
176
31
11
7
225
Total Amount
(before provision)
154,014,751
$
116,925,457
59,954,595
72,024,835
402,919,638
$
%
78.2%
13.8%
4.9%
3.1%
100%
%
38.2%
29.0%
14.9%
17.9%
100%
Unadvanced committed funds under the existing Investment Portfolio amounted to $113,464,052
as at December 31, 2015 ($83,646,839 as at December 31, 2014). Generally, investments are
shared with other syndicate partners to diversify risk.
Conventional First Mortgages
Conventional Non-First Mortgages
Related Investments
Discounted Debt Investments
Non-Conventional Mortgages
Total Investments (at amortized cost)
Less: Impairment Provision
Investment Portfolio
$
Dec. 31, 2015
283,869,955
41,799,212
59,422,966
5,022,775
12,804,730
402,919,638
(4,230,000)
398,689,638
$
$
70.45%
10.37%
14.75%
1.25%
3.18%
100.00%
Dec. 31, 2014
249,021,514
$
30,551,339
48,313,224
4,903,900
10,075,074
342,865,051
(3,360,000)
339,505,051
$
$
72.63%
8.91%
14.09%
1.43%
2.94%
100.00%
% Change
14%
37%
23%
2%
27%
18%
26%
17%
The $59.2 million growth in the Investment Portfolio was achieved by the Corporation increasing
the size of its investments in all of its investment categories.
Conventional first mortgages increased by 14% and represented 71% of the Corporation’s
portfolio at December 31, 2015 as compared to 73% at December 31, 2014. Related investments
increased by 23% and represented 15% of the Corporation’s Investment Portfolio in comparison
to 14% at December 31, 2014. Conventional non-first mortgages increased by 37% and
represented 10% of the Investment Portfolio. Non-conventional mortgages increased by 27% and
represented 3% of the Investment Portfolio. Discounted debt investments increased by 2% and
represented 1% of the Investment Portfolio.
The weighted average face interest rate on the Corporation’s Investment Portfolio was 8.19% per
annum as at December 31, 2015 as compared to 8.29% per annum as at December 31, 2014.
The Corporation holds one mortgage investment totaling $4,303,000 at December 31, 2015
(classified as Discounted debt investment) that originated from the purchase of a mortgage loan
from a schedule 1 bank at a discount to its original principal balance (December 31, 2014 -
$5,250,0000) on which interest payments are not being received. The Corporation’s investment
is by way of a participation in a mortgage loan to the entity that took title to the real estate
following the completion of the enforcement foreclosure of the real estate that was occurred
after the purchase of the underlying Schedule 1 bank mortgage. Recoveries under the
investment resulting from the sale of the secured real estate will be treated in the same fashion
as that for all non-conventional mortgage investments held by the Corporation.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 4
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Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Corporation continues to focus its lending into core markets that can be monitored closely
during evolving economic conditions. The mortgage portfolio has some geographic diversification
with 28% of the investments in the portfolio secured by properties outside of Ontario.
Other
6%
Alberta
11%
Quebec
11%
Ontario
72%
The Corporation’s investment portfolio as at December 31, 2015 included participation in 31
mortgage loans on real estate located in Alberta. The investment amount at December 31, 2015
totals $40.8 million, being 11% of the total Corporations’ mortgage investments, down from 13%
of the previous year end portfolio balance. The average investment size is $1.3 million. Of the
31 investments, 20 are individually less than $1 million. In the Alberta Portfolio, $38.9 million
(95%) is secured on residential real estate while $1.9 million (5%) is secured on commercial real
estate.
The Corporation’s strategy is to mitigate loan loss risk by focusing on those areas of mortgage
lending that have historically withstood market corrections and retained their underlying real
estate asset value while limiting its exposure to those real estate asset classes that do not.
As at December 31, 2015, the Investment Portfolio continued to be heavily concentrated in short-
term investments with 65% of the portfolio maturing by December 31, 2016. The short-term nature
of the portfolio provides the Corporation with the ability to continually revolve the portfolio and
adapt to changes in the real estate market.
RESULTS OF OPERATIONS
INTEREST AND FEES
For the fourth quarter ended December 31, 2015, interest and fees earned increased by 25% to
$9,641,484 as compared to $7,698,503 for the three months ended December 31, 2014. For the
year ended December 31, 2015, interest and fees earned increased by 11% to $34,005,435 as
compared to $30,691,450 for the year ended December 31, 2014. Interest and fees earned for
the three months and year ended December 31, 2015 and December 31, 2014 are broken down
as follows:
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 5
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
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Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Three Months Ended
Interest
Commitment & Renewal Fees
Special Income
Dec. 31, 2015
9,008,247
$
381,822
251,415
9,641,484
$
$
% Dec. 31, 2014
6,933,857
570,215
194,431
7,698,503
93%
4%
3%
100%
$
%
Change
30%
(33% )
29%
25%
%
90%
7%
3%
100%
Year Ended
Interest
Commitment & Renewal Fees
Special Income
Dec. 31, 2015
31,429,521
$
1,410,513
1,165,401
34,005,435
$
$
% Dec. 31, 2014
28,399,195
1,580,911
711,344
30,691,450
93%
4%
3%
100%
$
%
Change
11%
(11%)
64%
11%
%
93%
5%
2%
100%
Interest income of $9,008,247 and $31,429,521 for the fourth quarter and year ended December
31, 2015, respectively, increased by 30% and 11% as compared to the fourth quarter and year
ended December 31, 2014. Interest income represents 93% of the Corporation’s revenues for
both the fourth quarter and year ended December 31, 2015. The year over year increase in
annual interest income is generally a result of the Corporation holding a larger investment
portfolio compared to the same period in 2014 partially offset by a reduction in the portfolio
average interest rate.
Recorded fee income, relating to commitment and renewal fees, for the quarter ended December
31, 2015 decreased by approximately 33% compared to the quarter ended December 31, 2014.
Recorded fee income for the year ended December 31, 2015 decreased by approximately 11%
compared to the year ended December 31, 2014. As at December 31, 2015, the Corporation
had unearned commitment fee income of $913,981 (December 31, 2014 - $700,202). The
Corporation’s policy is to recognize commitment fees over the term of the related loan where such
fees are individually greater than $4,000. The unrecognized component of the fees are recorded
as unearned income on the Corporation’s balance sheet. These fees have been received and are
not refundable to borrowers.
Special income generated during the quarter ended and year ended December 31, 2015
increased by 29% and 64%, respectively, when compared to the same periods in the previous
year. Special income relates to certain fees and interest generated from a number of the
Corporation’s non-conventional mortgages and the timing of earning such income is not
necessarily consistent in each period. The timing of the recognition and collection of special
income is difficult to predict and the collection of a particular amount is not a reflection of the
future collection of such income. Non-conventional mortgage investments can attract higher loss
risk due to their subordinate ranking to other mortgage charges and/or high loan to value ratio.
Consequently, this higher risk is compensated for by a higher rate of return. The Corporation
remains very selective in cautiously sourcing high yielding, non-conventional mortgages that
meet the Corporation’s investment criteria.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 6
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Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
CORPORATION MANAGER INTEREST ALLOCATION
The Corporation Manager, through an interest spread arrangement, received $766,306 for the
quarter ended December 31, 2015 as compared to $636,316 for the quarter ended December 31,
2014. For the year ended December 31, 2015, the Corporation Manager received $2,873,993 as
compared to $2,586,438 for the year ended December 31, 2014. The increase is generally due
to the increase in the size of the Corporation’s daily average Investment Portfolio over the
comparable periods.
INTEREST EXPENSE
For the quarter ended December 31, 2015, interest expense increased by 25% to $2,423,290 as
compared to $1,936,125 during the three months ended December 31, 2014. For the year ended
December 31, 2015, interest expense increased by 21% to $9,350,610 as compared to the year
ended December 31, 2014 amount of $7,759,154. Interest expense, in general, is higher in the
2015 comparable periods as a result of the Corporation having larger bank indebtedness and
convertible debentures in 2015 versus 2014. The additional indebtedness that resulted in an
increase in interest expense in 2015 allowed the Corporation to hold a larger investment
portfolio, which generated additional interest income when compared to 2014. The Corporation
completed the public offering of two convertible unsecured debentures in 2015, accounting for
the increase in debenture interest expense. Interest expense is broken down as follows:
Three Months Ended
Bank Interest Expense
Loans Payable Interest Expense
Debenture Interest Expense
Year Ended
Bank Interest Expense
Loans Payable Interest Expense
Debenture Interest Expense
Dec. 31, 2015
348,447
$
121,237
1,953,606
2,423,290
$
Dec. 31, 2015
$
1,166,770
920,995
7,262,845
9,350,610
$
$
% Dec. 31, 2014
126,742
268,575
1,540,808
1,936,125
14%
5%
81%
100%
$
$
% Dec. 31, 2014
804,398
802,513
6,152,243
7,759,154
12%
10%
78%
100%
$
%
Change
175%
(55% )
27%
25%
%
Change
45%
15%
18%
21%
%
7%
14%
79%
100%
%
10%
10%
80%
100%
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES
G&A expenses increased to $235,681 for the quarter ended December 31, 2015 as compared to
$153,942 for the quarter ended December 31, 2014. G&A expenses increased to $829,574 for
the year ended December 31, 2015 as compared to $805,745 for the year ended December 31,
2014.
INCOME & PROFIT (“PROFIT”)
Profit for the quarter ended December 31, 2015 increased by 9% to $5,376,207 as compared to
$4,942,120 for the same period in the prior year. Profit for the year ended December 31, 2015 of
$20,081,258 represents a 3% increase over the comparable year ended 2014 year of
$19,510,113.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 7
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
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Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Profit for the quarter ended December 31, 2015 represented an annualized return on
shareholders’ equity (based on the month end average shareholders’ equity in the quarter) of
10.18% versus a previously reported return on shareholders’ equity of 9.34% for the year ended
December 31, 2014. This return on shareholders’ equity represents 969 basis points per annum
over the average one year Government of Canada Treasury bill yield of 0.49% and is well in
excess of the Corporation’s stated target yield objective of 400 basis points per annum over the
average one year Government of Canada Treasury bill yield. The above return on shareholders’
equity is a non-IFRS financial measure and does not have any standardized meaning prescribed
by IFRS and is, therefore, unlikely to be comparable to similar measures presented by other
issuers. This non-IFRS measure provides useful information to the Corporation’s shareholders as
it provides a measure of return generated on the Corporation’s equity base.
TOTAL COMPREHENSIVE INCOME
As discussed further in the Marketable Securities and Debenture Portfolio Investment sections
later herein, the Corporation has invested in units in publicly traded real estate investment trusts
and debentures of publicly traded real estate investment trusts. The Corporation classifies these
financial assets as available for sale and as such records the investments carrying value at fair
value.
Commencing in the third quarter of 2014, the Corporation began to include in its financial
statements separate statements of income and separate statements of comprehensive income.
The statements of comprehensive income presents the impact of the changes in fair value of the
marketable securities and debenture portfolio.
The change in fair value of marketable securities and the debenture portfolio for the year ended
December 31, 2015 was a reduction of $74,570 compared to an increase of $72,966 for the year
ended December 31, 2014. Total comprehensive income for the year ended December 31, 2015
was $20,006,688 as compared to $19,583,079 for the year ended December 31, 2014.
PROFIT PER SHARE
Basic weighted average profit per share for the quarter ended December 31, 2015 was $0.265,
which is 8% higher than the $0.245 per share reported for the three months ended December 31,
2014. Basic weighted average profit per share for the year ended December 31, 2015 was $0.991,
which is 2% higher compared to the $0.976 per share reported for the year ended December 31,
2014.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 8
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Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY FINANCIAL INFORMATION
($ in millions except per unit amounts)
Operating revenue
Interest expense
Corporation manager interest allocation
General & administrative expenses
Impairment loss on investment portfolio
Profit
Profit per share
- Basic
- Diluted
Dividends per share
$
$
$
Dec. 31
2015
9.64
2.42
0.77
0.24
0.84
5.37
Sep. 30
2015
8.59
2.55
0.76
0.20
0.03
5.05
Jun. 30
2015
8.12
2.37
0.71
0.24
-
4.80
$
Mar. 31
2015
7.65
2.00
0.64
0.16
-
4.85
$
$
Dec. 31
2014
7.70
1.94
0.64
0.15
0.03
4.94
$
$
Sep. 30
2014
7.80
2.10
0.72
0.18
-
4.80
$
$
Jun. 30
2014
7.52
1.82
0.63
0.27
-
4.80
$
$
Mar. 31
2014
7.68
1.91
0.60
0.20
-
4.97
$
$
$
$
$0.265
$0.258
$0.289
$0.249
$0.243
$0.234
$0.237
$0.231
$0.234
$0.240
$0.238
$0.234
$0.245
$0.243
$0.268
$0.239
$0.237
$0.234
$0.239
$0.237
$0.234
$0.253
$0.248
$0.234
Note:
Fourth quarter dividends include one-time payout of accumulated excess earnings throughout the year
DIVIDENDS
For the fourth quarter and year ended December 31, 2015, the Corporation declared dividends
totaling $5,867,815 and $20,081,258, respectively, or $0.289 and $0.991 per share versus
$5,402,269 and $19,510,113 or $0.268 and $0.970 per share for the fourth quarter and year
ended December 31, 2014. The per share amount of dividends increased quarter over quarter
and also increased year over year. The number of shares outstanding at December 31, 2015 was
20,313,943 as compared to 20,162,266 at December 31, 2014.
Year Ended
Cash Flow From Operating Activities
(net of interest expense)
Profit
Declared Dividends
Excess Cash Flow From Operating Activities
Over (Under) Declared Dividends
Profit Over Declared Dividends
CHANGES IN FINANCIAL POSITION
Dec. 31, 2015
$
20,055,780
Dec. 31, 2014
$
21,028,036
Change
(5% )
$
$
20,081,258
20,081,258
$
$
19,510,113
19,510,113
3%
3%
$
(25,478)
$
-
1,517,923
$
$
-
AMOUNTS RECEIVABLE & PREPAID EXPENSES
The amounts receivable and prepaid expenses totaled $4,709,241 as at December 31, 2015
(comprised of interest receivable of $4,332,539, fees receivable of $238,882, and prepaid
expenses of $137,820) compared to $2,446,717 as at December 31, 2014. The year over year
increase in interest receivable is essentially a result of the December 31, 2015 interest receivable
balance including large interest receivables on four of the Corporation mortgage investments
(the largest increase of the four being a non-conventional mortgage) that were either small or nil
as at December 31, 2014. The four mortgages are performing with the interest receivable
amount on each being large, as a result of the contractual payment terms allowing for the
accrual of interest for periods of longer than a regular one-month period.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 9
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
9
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARKETABLE SECURITIES
The Corporation holds publicly traded units of two Canadian real estate investment trusts. The
units were acquired through the exercise of warrants that were granted by the issuers as part of
a loan facility in which the Corporation was a participant. The units generate distributions that
are consistent with the Corporation’s overall yield objective. The $1,949,106 balance reported
on the Corporation’s balance sheet as at December 31, 2015 represents the fair value of the
marketable securities comprising the portfolio (December 31, 2014 – $2,221,756). The
Corporation’s purchase price for the units was $2,056,275. The approximate average interest
yield on the cost of these investments is 8.5% per annum.
DEBENTURE PORTFOLIO INVESTMENT
The Corporation holds a small portfolio of publicly traded convertible debentures of Canadian real
estate investment trusts. These investments, when purchased at the appropriate purchase price,
generate interest income and yields that are consistent with the Corporation’s overall yield
objective. The $2,076,800 balance reported on the Corporation’s balance sheet at December 31,
2015 (December 31, 2014 - $687,758) represents the fair value of the convertible debentures
comprising the portfolio. The average yield to maturity on these investments is 9.4%. The
Corporation purchase price for the debenture portfolio was $1,971,235.
LOAN ON DEBENTURE PORTFOLIO INVESTMENT
The Corporation holds a small portfolio of publicly traded convertible debentures of Canadian real
estate investment trusts within its debenture portfolio investment. As a result of the very attractive
leverage available on the portfolio from an interest rate stand point, the Corporation has a loan
payable against the portfolio in the amount of $1,420,073 as at December 31, 2015 (December
31, 2014 - $331,800). The loan essentially represents a margin loan against the debenture
portfolio at a current interest rate of 1% per annum and is open for repayment at any time.
BANK INDEBTEDNESS
Bank indebtedness increased by approximately $27.0 million to $41,713,128 as compared to
$14,664,178 at December 31, 2014. Funds obtained from the increase in bank indebtedness was
used to increase the size of the investment portfolio.
LOANS PAYABLE
Loans payable, which are borrowings matched to specific mortgages at fixed interest rates,
decreased to $7,093,535 as at December 31, 2015 compared to $21,847,970 as at December
31, 2014 and are secured by a first priority charge on specific mortgage investments. The loans
payable have maturity dates matching those of the underlying mortgages. The loans are on a
non-recourse basis and are asset specific, such that the Corporation will not be liable for any
deficiency sustained by the lender on any specific loan.
CONVERTIBLE DEBENTURES
As at December 31, 2015, the Corporation has six series of convertible debentures outstanding,
as outlined below:
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 10
10 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Ticker
Symbol
FC.DB.A
FC.DB.B
FC.DB.C
FC.DB.D
FC.DB.E
FC.DB.F
Total / Average
.
.
.
.
Issue Date Maturity Date
Coupon
5.75%
Oct 13, 2010 Oct 31, 2017
5.40% Aug 23, 2011 Feb 28, 2019
5.25% Mar 31, 2012 Mar 31, 2019
4.75% Mar 28, 2013 Mar 31, 2020
5.30% April 17, 2015 May 31, 2022
5.50% Dec. 23, 2015 Dec. 31, 2022
5.36%
.
$
Principal at
Issue Date
31,443,000
25,738,000
20,485,000
20,000,000
25,000,000
23,000,000
145,666,000
$
$
Current
Principal
31,443,000
25,738,000
20,485,000
20,000,000
25,000,000
23,000,000
145,666,000
$
Strike Price
Per Share
$
15.90
$
14.35
$
14.80
$
15.80
$
13.95
$
14.00
$
Accounting
Liability
30,994,955
24,914,687
19,693,717
19,087,320
23,748,170
21,465,200
139,904,049
$
As at December 31, 2015, the current principal balance for the outstanding convertible
debentures is $145,666,000. The recorded convertible debenture liability as at December 31,
2015 is $139,904,049 compared to $93,746,796 as at December 31, 2014. The weighted
average effective interest rate is 5.36% per annum (5.35% as at December 31, 2014).
On April 17, 2015, the Corporation closed a $25,000,000 aggregate principal amount of 5.30%
convertible unsecured subordinated debentures due May 31, 2022. These debentures bear
interest at a rate of 5.30% per annum, payable semi-annually in arrears on the last day of May
and November in each year commencing on November 30, 2015. The debentures mature on
May 31, 2022 and are convertible at the holder's option into common shares of the Corporation
at a conversion price of $13.95 per Share.
On December 23, 2015, the Corporation closed a $23,000,000 aggregate principal amount of
5.50% convertible unsecured subordinated debentures due December 31, 2022. These
debentures bear interest at a rate of 5.50% per annum, payable semi-annually in arrears on the
last day of June and December in each year commencing on June 30, 2016. The debentures
mature on December 31, 2022 and are convertible at the holder's option into common shares of
the Corporation at a conversion price of $14.00 per Share.
OTHER LIABILITIES
Other liabilities for the Corporation include the following:
Additional Liabilities
Accounts Payable and Accrued Liabilities
Unearned Income
Shareholders Dividends Payable
Total
Dec. 31, 2015
2,195,415
913,981
2,701,754
5,811,150
$
$
Dec. 31, 2014
2,123,043
700,202
2,258,174
5,081,419
$
$
% Change
3%
31%
20%
14%
Accounts payable and accrued liabilities increased by 3% to $2,195,415 as at December 31,
2015 as compared to $2,213,043 as at December 31, 2014. Accounts payable and accrued
liabilities include interest payable of $1,439,471 and accrued liabilities of $755,944.
Unearned income relating to commitment fees generated on the Corporation’s mortgage
investments increased by 31% to $913,981 as at December 31, 2015 as compared to $700,202
as at December 31, 2014. The Corporation’s policy is to recognize commitment fees over the
term of the related loan where such fees are individually greater than $4,000. The unrecognized
component of the fees is recorded as unearned income on the Corporation’s balance sheet.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 11
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
11
Building Relationshipstoday and tomorrow
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
SHAREHOLDERS' EQUITY
Shareholders’ equity at December 31, 2015 totaled $211,482,850 compared to $209,189,119 as
at December 31, 2014. The Corporation had 20,313,943 shares issued and outstanding as at
December 31, 2015 compared to 20,162,266 as at December 31, 2014. The majority of the
increase in shares is attributable to i) a private placement of 80,000 shares was completed at
the end of the first quarter of 2015 and ii) shares issued under the dividend reinvestment plan.
IMPAIRMENT LOSS
Investments consist of participation in mortgage loans and real estate related debt investments.
Such investments are recognized initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, the mortgage loans are measured at amortized cost using
the effective interest method, less any impairment losses. The Company assesses individually
significant investments at each reporting date to determine whether there is objective evidence of
impairment. An impairment loss in respect of the investments measured at amortized cost is
calculated as the difference between its carrying amount and the amount of the future cash flows
estimated to be recovered on the loan security. Estimates and assumptions are made as to the
gross sale proceeds that would be generated on the forced sale of the real property securing the
related mortgage loan and reflect estimates of the current local market conditions. Estimates are
made as to the costs of enforcing under the mortgage loan and of realizing on the real property.
In particular, judgment by management is required in the estimation of the amount and timing of
future cash flows when determining the impairment loss. These estimates are based on
assumptions about a number of factors and actual results may differ, resulting in future changes
to the allowance. Losses are recognized in the statement of income and reflected in an
impairment provision against the investments. Interest on the impaired asset continues to be
recognized to the extent it is deemed to be collectible.
Investments that have been assessed individually and found not to be impaired and all individually
insignificant mortgages are then assessed collectively in groups of mortgages with similar risk
characteristics to determine whether a collective allowance should be recorded due to incurred
loss events for which there is objective evidence but whose effects are not yet evident. The
collective assessment takes into account (i) data from the Investment Portfolio (such as borrower
financial position, loan defaults and arrears, loan to value ratios, etc.); (ii) economic data (including
current real estate prices for various real estate asset categories); and (iii) actual historical loan
losses. Modeling and projections based on historical loan losses have not been done given that
no actual loan losses have been incurred. The impact of the assumed theoretical declines in
real estate values on the collective loan category is also considered . The conclusion of this
assessment is that zero collective allowance is required to be taken.
When a subsequent event causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through income or profit. The impairment provision stood at
$4,230,000 as at December 31, 2015 (December 31, 2014 - $3,360,000) and represents the total
amount of management’s estimate of the shortfall between the Investment Portfolio principal
balances and the estimated net realizable recovery from the collateral securing the loans. The
impairment provision represents approximately 1% of the Investment Portfolio balance. The
impairment provision was increased by $840,000 in the fourth quarter of 2015 and by $870,000
during 2015.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 12
12 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
RELATED PARTY TRANSACTIONS
Transactions with related parties are in the normal course of business and are recorded at the
exchange amount, which is the amount of consideration established and agreed to by the related
parties and are measured at fair value.
The Corporation Manager (a company related to officers and/or directors of the Corporation)
receives an allocation of interest, referred to as Corporation Manager spread interest, calculated
as 0.75% per annum of the Corporation’s daily outstanding performing investment balances. For
the year ended December 31, 2015, this amount was $2,873,993 (December 31, 2014 -
$2,586,438) and for the three months ended December 31, 2015, the amount was $766,306
(December 31, 2014 - $636,316). Included in accounts payable and accrued liabilities of the
Corporation at December 31, 2015 are amounts payable to the Corporation Manager of $253,538
(December 31, 2014 - $215,420).
The total directors’ fees paid for the year ended December 31, 2015 was $183,000 (December
31, 2014 - $171,625). Certain key management personnel are also directors of the Corporation
and receive compensation from the Corporation Manager.
The Mortgage Banker (a company related to officers and/or directors of the Corporation) receives
certain fees directly from borrowers as follows: loan servicing fees equal to 0.10% per annum on
the principal amount of each of the Corporation’s investments; 75% of all the commitment and
renewal fees generated from the Corporation’s investments; and 25% of all the special profit
income generated from the non-conventional investments after the Corporation has yielded a 10%
per annum return on its investments. Interest and fee income is net of the loan servicing fees paid
to the Mortgage Banker of approximately $383,000 for the year ended December 31, 2015
(December 31, 2014 - $345,000). The Mortgage Banker also retains all overnight float interest
and incidental fees and charges payable by borrowers on the Corporation’s investments.
The Corporation Management Agreement and Mortgage Banking Agreement contain provisions
for the payment of termination fees to the Corporation Manager and Mortgage Banker in the event
that the respective agreements are either terminated or not renewed.
Several of the Corporation’s investments are shared with other investors of the Mortgage Banker,
which may include members of management of the Mortgage Banker and/or officers or directors
of the Corporation. The Corporation ranks equally with other members of the syndicate as to
receipt of principal and income.
A mortgage investment totaling $5,250,000 (December 31, 2014 - $5,250,000) was issued to a
borrower controlled by an independent director of the Corporation. The investment was made by
way of a participation in a direct loan to the entity controlled by the director. The investment is
dealt with in accordance with the Corporation's existing investment and operating policies and is
personally guaranteed by the director.
A mortgage investment totaling $1,082,657 (December 31, 2014 - $1,456,581) was issued to a
borrower controlled by the same independent director set out above. The investment represents
a participation in a first mortgage loan assumed by the entity controlled by the director. The
director became involved in the borrower entity by virtue of his position as a second mortgage
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 13
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
13
Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
lender to the borrower that fell into default. During the year, the Corporation recorded an
additional $45,000 provision against this mortgage investment (2014 – reduction in provision of
$400,000) for a total allowance of $200,000 at December 31, 2015 (2014 - $155,000) on this
mortgage investment.
The Corporation also holds a mortgage investment totaling $4,303,000 at December 31, 2015
(classified as Discounted debt investment) that originated from the purchase of a mortgage loan
from a schedule 1 bank at a discount to its original principal balance (December 31, 2014 -
$3,978,000). The Corporation’s investment is by way of a participation in a mortgage loan to the
entity that took title to the real estate following the completion of the enforcement foreclosure of
the real estate that was occurred after the purchase of the underlying Schedule 1 bank mortgage.
The entity that holds title to the real estate as agent is related to the other participants in the
mortgage loan investment, including entities related to certain directors of the Corporation. An
impairment provision of $575,000 was recorded in the current year (2014 - $1,275,000) bringing
the impairment allowance recorded on this loan to $1,850,000 as at December 31, 2015
(December 31, 2014 - $1,275,000). Recoveries under the investment resulting from the sale of
the secured real estate will be treated in the same fashion as that for all non-conventional
mortgage investments held by the Corporation.
Related party transactions are further discussed and detailed in the Corporation’s AIF and in Note
13 of the accompanying financial statements.
INCOME TAXES
The Corporation qualifies as a mortgage investment corporation within the meaning of the Income
Tax Act (Canada). As such, the Corporation is entitled to deduct from its taxable income dividends
paid to shareholders during the year or within the first 90 days of the following taxation year. In
order to maintain its status as a mortgage investment corporation, the Corporation must
continually meet all criteria enumerated in the relevant section of the Income Tax Act (Canada)
throughout such taxation year. The Corporation intends to maintain its status as a mortgage
investment corporation and intends to distribute sufficient dividends in the year and in future years
to ensure that the Corporation has no tax payable under the Income Tax Act (Canada).
Accordingly, for financial statement reporting purposes, the tax deductibility of the Corporation’s
dividends results in the Corporation being effectively exempt from taxation and no provision for
current or deferred income taxes is required.
CRITICAL ACCOUNTING ESTIMATES
The determination of the impairment provision for the Investment Portfolio is a critical accounting
estimate.
The Investment Portfolio is classified as loans and receivables. Such investments are recognized
initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, the mortgage loans are measured at amortized cost using the effective interest
method, less any impairment losses. The mortgage investments are assessed at each reporting
date to determine whether there is objective evidence of impairment. An impairment loss in
respect of the mortgage investments measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows and cash
recoveries discounted at the asset’s original effective interest rate. Losses are recognized in the
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 14
14 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
statement of income and reflected in an allowance account against the mortgage investments.
When a subsequent event causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through income or profit. Management is required to consider the
estimated future cash flow recovery from the collateral securing the mortgage investments. The
estimation of cash flow recovery is performed on an individual mortgage basis and is based on
assumptions pertinent to each mortgage investment. Each mortgage analysis often has unique
factors that are considered in determining the cash flow and realizable value of the underlying
security. The estimates are based on historical experience and other assumptions that
management believes are responsible and appropriate in the circumstances. Actual results may
differ from these estimates.
FINANCIAL INSTRUMENTS
The fair values of amounts receivable and prepaid expenses, bank indebtedness, accounts
payable and accrued liabilities, and shareholder dividends payable approximate their carrying
values due to their short-term maturities.
The fair value of the Investment Portfolio approximates its carrying value as the majority of the
loans are repayable in full at any time without penalty and have floating interest rates. There is
no quoted price in an active market for the mortgage and loan investments or mortgage
syndication liabilities. Management makes its determinations of fair value based on its
assessment of the current lending market for mortgage and loan investments of same or similar
terms. As a result, the fair value of mortgage and loan investments is based on Level 3 on the fair
value hierarchy.
The fair values of loans payable approximate their carrying values due to the fact that the
majority of the loans are: (i) repayable in full, at any time, upon the borrower under the
underlying loan that secures the loan payable repaying their loan without penalty; and (ii) have
floating interest rates linked to bank prime interest rate.
The fair value of convertible debentures, including their conversion option, has been determined
based on the closing price of the debentures of the Corporation on the Toronto Stock Exchange
for the respective date.
The fair value of the debenture portfolio investment has been determined based on the closing
price of convertible debenture securities of the respective listed entities on the Toronto Stock
Exchange for the respective date.
The fair value of marketable securities has been determined based on the closing price of the
security of the respective listed entities on the Toronto Stock Exchange for the respective date.
The fair value of loans on the debenture portfolio approximates its carrying value due to the fact
that it is fully open for repayment and has a floating rate of interest.
The tables in note 16 of the financial statements present the fair values of the Corporation's
financial instruments as at December 31, 2015 and December 31, 2014. It does not include fair
value information for financial assets and financial liabilities not measured at fair value if the
carrying amount is a reasonable approximation of fair value.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 15
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
15
Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONTRACTUAL OBLIGATIONS
Contractual obligations as at December 31, 2015 are due as follows:
Less than 1
year
Total
1-3 years
4 - 6 years
Bank indebtedness
Accounts payable and accrued liabilities
Loan on debenture portfolio investment
Shareholder dividend payable
Loans payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
$
41,713,128
2,195,415
1,420,073
2,701,754
7,093,535
145,666,000
200,789,905
113,464,052
314,376,957
$
41,713,128
2,195,415
1,420,073
2,701,754
7,093,535
-
$
55,123,905
113,464,052
$
168,710,957
$
-
-
-
-
-
31,443,000
31,443,000
-
31,443,000
$
$
$
-
-
-
-
-
114,223,000
114,223,000
-
114,223,000
$
$
SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is described in note 3 of the Corporation’s financial
statements for the year ended December 31, 2015 and year ended December 31, 2014.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Corporation’s intent to qualify as a mortgage investment corporation, the
Corporation intends to distribute no less than 100% of the taxable income of the Corporation,
determined in accordance with the Income Tax Act (Canada), to its shareholders. The result is
that growth in the Investment Portfolio can only be achieved through the raising of additional
equity, issuing debt, and utilizing available borrowing capacity. As at December 31, 2015, the
Corporation had not utilized its full leverage availability, being a maximum of 60% of its first
mortgage investments. Unadvanced committed funds under the existing Investment Portfolio
amounted to $113,587,052 as at December 31, 2015 (December 31, 2014 - $83,646,839).
These commitments are anticipated to be funded from the Corporation’s credit facility and
borrower repayments under the Investment Portfolio. The Corporation has a revolving line of
credit with its principal banker to fund the timing differences between mortgage advances and
mortgage repayments. There are limitations in the availability of funds under the revolving line of
credit, which is made up of a committed component and a demand component. The
Corporation’s investments are predominantly short-term in nature, and as such, the continual
repayment by borrowers of existing mortgage investments creates liquidity for ongoing
investments and funding commitments.
RISKS AND UNCERTAINTIES
The Corporation follows investment guidelines and operating policies. The board of directors, in
its discretion, may amend or approve investments that exceed these guidelines and policies as
investments are made. These policies govern such matters as: (i) restricting exposure per
mortgage investment; (ii) requirements for director approvals; and (iii) implementation of
operational risk management policies.
The Corporation is faced with the following ongoing risk factors, among others, that would affect
shareholders’ equity and the Corporation’s ability to generate returns. A greater discussion of risk
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 16
16 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
factors that affect the Corporation are included in the AIF under the section “Risk Factors”, which
section is incorporated herein by reference.
Economic conditions that would result in a significant decline in real estate values and corresponding
loan losses.
Under various federal, provincial and municipal laws, an owner or operator of real property could
become liable for the cost of removal or remediation of certain hazardous or toxic substances released
on or in its properties or disposed of at other locations. The existence of such liability can have a
negative impact on the value of the underlying real property securing a mortgage. The Corporation
does not own the real property securing its Investment Portfolio and thus would not attract the
environmental liability that an owner would be exposed to. In rare circumstances where a mortgage is
in default, the Corporation may take possession of real property and may become liable for
environmental issues as a mortgagee in possession. The Corporation obtains phase 1 environmental
reports for mortgages where the Mortgage Banker determines that such reports would be prudent given
the nature of the underlying property.
The inability to obtain borrowings and leverage, thus reducing yield enhancement.
Dependence on the Corporation Manager and Mortgage Banker. The Corporation’s earnings are
impacted by the Mortgage Banker’s ability to source and generate appropriate investments that provide
sufficient yields while maintaining pre-determined risk parameters. The Corporation has also entered
into long-term contracts with the Mortgage Banker and the Corporation Manager, as more particularly
described in the AIF. The Corporation is exposed to adverse developments in the business and affairs
of the Corporation Manager and Mortgage Banker, since the day to day activities of the Corporation
are run by the Corporation Manager and since all of the Corporation’s investments are originated by
the Mortgage Banker.
Portfolio face rate fluctuations. The interest rate earned on the Corporation’s Investment Portfolio
fluctuates given that (i) it continually revolves given that it is short term in nature; and (ii) the portfolio
is predominately floating rate interest with floors.
Interest rate risk. The Corporation’s operating loan is floating rate and an increase in short term rates
would increase the Corporation’s cost of borrowing.
No guaranteed return. There is no guarantee as to the return that an investment in Shares of the
Corporation will earn.
Qualification as a Mortgage Investment Corporation. Although the Corporation intends to qualify at all
times as a mortgage investment corporation, no assurance can be provided in this regard. If for any
reason the Corporation does not maintain its qualification as a mortgage investment corporation under
the Tax Act, dividends paid by the Corporation on the Shares will cease to be deductible by the
Corporation in computing its income and will no longer be deemed by the rules in the Tax Act that apply
to mortgage investment corporations to have been received by shareholders as bond interest or a
capital gain, as the case may be. In consequence, the rules in the Tax Act regarding the taxation of
public corporations and their shareholders should apply, with the result that the combined corporate
and shareholder tax may be significantly greater.
Availability of investments. Our ability to make investments in accordance with our objectives and
investment policies depends upon the availability of suitable investments and the general economy
and marketplace. Increased competition in the lending market place in which the Corporation operates
from chartered banks or other public or private lending entities may impact the availability of suitable
investments and achievable investment yields for the Corporation.
Limited sources of borrowing. The Canadian financial marketplace is characterized as having a limited
number of financial institutions that provide credit to entities such as ours. The limited availability of
sources of credit may limit our ability to take advantage of leveraging opportunities to enhance the yield
on our mortgage investments.
Specific investment risk for non-conventional mortgage and second mortgage investments. Non-
conventional and second mortgage investments attract higher loan loss risk due to their subordinate
ranking to other mortgage charges and sometimes high loan to value ratio. Consequently, this higher
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 17
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
17
Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
risk is compensated for by a higher rate of return. In order to mitigate risk and maintain a well-
diversified investment portfolio, the operating policies of the Corporation generally limit the amount of
Conventional Non-First Mortgage investments to a maximum of 30% of the Corporation’s capital,
subject to the Board of Directors’ approval for any modifications to the operating policies.
Specific investment risk for land mortgage investments. Land mortgages pose a unique risk in the
event of default in that the work-out period can be lengthy while the asset has no capacity to generate
cash flow.
Reliance on Borrowers. After the funding of an investment, we rely on borrowers to maintain adequate
insurance and proper adherence to environmental regulations during the ongoing management of their
properties.
SUBSEQUENT EVENT
During January 2016, a Director of the Corporation exercised 35,000 options at a price of $11.78
per common shares for total gross proceeds of approximately $412,300.
RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS
Management is responsible for the information disclosed in this MD&A, and has in place the
appropriate information systems, procedures, and controls to ensure that the information used
internally by management and disclosed externally is complete, reliable, and timely. In addition,
the Corporation’s Audit Committee and Board of Directors provide an oversight role with respect
to all public financial disclosures by the Corporation, and have reviewed and approved this MD&A
as well as the interim condensed financial statements as at December 31, 2015 and 2014.
CONTROLS AND PROCEDURES
The Corporation maintains appropriate information systems, procedures, and controls to ensure
that information disclosed externally is complete, reliable, and timely. The Corporation’s Chief
Executive Officer and Chief Financial Officer evaluated, or caused an evaluation under their
direct supervision of, the design and operating effectiveness of the Corporation’s disclosure
controls and procedures (as defined in National Instrument 52-109, Certification of Disclosure in
Issuers’ Annual and Interim Filings) as at December 31, 2015 and have concluded that such
disclosure controls and procedures were appropriately designed and were operating effectively.
The Corporation has also established adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of the Corporation’s financial reporting and the
preparation of the financial statements for external purposes in accordance with IFRS for periods
effective January 1, 2010. The Corporation’s Chief Executive Officer and the Chief Financial
Officer assessed, or caused an assessment under their direct supervision of, the design and
operating effectiveness of the Corporation’s internal controls over financial reporting (as defined
in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings)
as at December 31, 2015 . Based on that assessment, it was determined that the Corporation’s
internal controls over financial reporting were appropriately designed and were operating
effectively.
The Corporation did not make any changes to the design of the Corporation’s internal controls
over financial reporting during the year ended December 31, 2015 that would have materially
affected or would be reasonably likely to materially affect the Corporation’s internal controls over
financial reporting.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 18
18 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
It should be noted that a control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues, including instances of fraud, if any, have been detected.
These inherent limitations include, among other items: (i) that management’s assumptions and
judgments could ultimately prove to be incorrect under varying conditions and circumstances; (ii)
the impact of any undetected errors; and (iii) controls may be circumvented by the unauthorized
acts of individuals, by collusion of two or more people, or by management override. The design
of any system of controls is also based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
FORWARD LOOKING INFORMATION
Certain information included in this MD&A contains forward-looking statements within the
meaning of applicable securities laws including, among others, statements concerning our 2015
objectives and our strategies to achieve those objectives, as well as statements with respect to
management’s beliefs, estimates, and intentions, and similar statements concerning anticipated
future events, results, circumstances, performance, or expectations that are not historical facts.
Forward-looking statements generally can be identified by the use of forward-looking terminology
such as “outlook”, “objective”, “may”, “will”, “expect”, “intent”, “estimate”, “anticipate”, “believe”,
“should”, “plans”, or “continue”, or similar expressions suggesting future outcomes or events.
Such forward-looking statements reflect management’s current beliefs and are based on
information currently available to management.
These statements are not guarantees of future performance and are based on our estimates and
assumptions that are subject to risks and uncertainties, including those described below in this
MD&A under Risks and Uncertainties, which could cause our actual results to differ materially
from the forward-looking statements contained in this MD&A. Those risks and uncertainties
include risks associated with mortgage lending, competition for mortgage lending, real estate
values, interest rate fluctuations, environmental matters, and shareholder liability. Material
factors or assumptions that were applied in drawing a conclusion or making an estimate set out
in the forward-looking information include the assumption that there is not a significant decline in
the value of the general real estate market; market interest rates remain relatively stable; the
Corporation is generally able to sustain the size of its Investment Portfolio; adequate investment
opportunities are presented to the Corporation; and adequate bank indebtedness are available
to the Corporation. Although the forward-looking information contained in this MD&A is based
upon what management believes are reasonable assumptions, there can be no assurance that
actual results will be consistent with these forward-looking statements.
All forward-looking statements in this MD&A are qualified by these cautionary statements. Except
as required by applicable law, the Corporation undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new information, future events or
otherwise.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 19
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
19
Building Relationshipstoday and tomorrow MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OUTLOOK
We have stated over the past few years that the Corporation’s investment style has favored a
defensive approach, reflecting the very mature nature of the real estate market from a valuations
stand point. Our conservative approach resulted in the Corporation holding a relatively small
Alberta investment portfolio, focused mainly on short-term, first mortgages. Future changes in
real estate values in any province do not overly concern us, as our current investment portfolio
was created with this defensive operating strategy in mind. We have stated for a number of years
that we are operating in an uncertain market with many inexperienced players involved in all
aspects of the market.
As each current investment is monetized, we redeploy the capital into new investments, taking a
cautious approach. In 2015, the Investment Portfolio repayments totaled $285 million, with new
investments during the year totaling $345 million, resulting in a year-end portfolio balance of
$402.9 million. This turn is the key to our investment approach and the measure of its success.
We feel the attention given to our new investments will help mitigate the impact of changing
market conditions. We will continue to pay very close attention to a number of factors, including
the Alberta real estate market and the Canadian housing market in general, and will not invest in
mortgages secured by illiquid and non-marketable properties. The overabundance of capital in
the market has provided an environment whereby borrowers request loan structures that
incorporate either too much risk exposure or too little return for their loan parameters. The
Corporation will not lend in these situations and will instead look for safer, innovatively
structured, niche transactions that will protect our Shareholders' Equity.
We have always stated our focus is preservation of capital through disciplined investing. We
achieve this by having a solid loan loss impairment provision of $4,230,000. This is a prudent
provision that has increased by $870,000 in 2015. These provisions are required to maintain a
strong balance sheet and stable dividends.
For the balance of 2016, we anticipate the Corporation will continue to exceed its stated objective
of generating a return on its equity of 400 basis points over the average one year Government of
Canada Treasury bill yields. We have exceeded this stated objective since going public in 1999.
Firm Capital Mortgage Investment Corporation • 2015 • Fourth Quarter Page 20
20 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MANAGEMENT’S RESPONSIBILTY FOR FINANCIAL REPORTING
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
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(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:3) (cid:3)
(cid:3)(cid:45)(cid:50)(cid:49)(cid:36)(cid:55)(cid:43)(cid:36)(cid:49)(cid:3)(cid:48)(cid:36)(cid:44)(cid:53)
(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:16)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)
(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
(cid:20)(cid:27)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:135)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:135)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
21
Building Relationshipstoday and tomorrow KPMG LLP
Bay Adelaide Centre
333 Bay Street Suite 4600
Toronto ON M5H 2S5
Canada
Telephone
Fax
Internet
(416) 777-8500
(416) 777-8818
www .kpmg .ca
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Firm Capital Mortgage Investment Corporation
We have audited the accompanying financial statements of Firm Capital Mortgage Investment
Corporation, which comprise the balance sheets as at December 31, 2015 and 2014, the statements
of income, comprehensive income, changes in shareholders' equity and cash flows for the years then
ended, and notes, comprising a summary of significant accounting policies and other explanatory
information .
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error .
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits . We
conducted our audits in accordance with Canadian generally accepted auditing standards . Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement .
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements . The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error . In making those risk assessments, we consider internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control . An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements .
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion .
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
Firm Capital Mortgage Investment Corporation as at December 31, 2015 and 2014, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards .
Chartered Professional Accountants, Licensed Public Accountants
March 29, 2016
Toronto, Canada
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP
22 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Balance Sheets
Balance Sheets
(in Canadian dollars)
As at
Assets
Amounts receivable and prepaid expenses (note 4)
Marketable securities (note 5)
Debenture portfolio investment (note 5)
Investment portfolio (note 6)
Total assets
Liabilities
Bank indebtedness (note 7)
Loan on debenture portfolio investment
Accounts payable and accrued liabilities
Unearned income
Shareholders dividends payable
Loans payable (note 8)
Convertible debentures (note 9)
Total liabilities
Shareholders' Equity
Common shares
Equity component convertible debentures
Stock options
Contributed surplus
Deficit
Accumulated other comprehensive income (loss)
Total shareholders' equity
Commitments (note 6)
Contingent liabilities (note 15)
December 31, 2015
December 31, 2014
$
$
$
$
$
$
4,709,241
1,949,106
2,076,800
398,689,638
407,424,785
41,713,128
1,420,073
2,195,415
913,981
2,701,754
7,093,535
139,904,049
195,941,935
2,446,717
2,221,756
687,758
339,505,051
344,861,282
14,664,178
331,800
2,123,043
700,202
2,258,174
21,847,970
93,746,796
135,672,163
$
$
209,220,787
2,484,000
100,531
962
(321,826)
(1,604)
211,482,850
$
207,378,123
1,960,000
98,894
962
(321,826)
72,966
209,189,119
$
Total liabilities and shareholders' equity
$
407,424,785
$
344,861,282
See accompanying notes to financial statements.
On behalf of the Directors:
(signed) "Eli Dadouch" (signed) "Jonathan Mair"
ELI DADOUCH JONATHAN MAIR
Director Director
1
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
23
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Income
Statements of Income
Years ended December 31, 2015 and 2014
(in Canadian dollars)
Interest and fees earned
Corporation manager interest allocation (note 13)
Interest expense (note 14)
General and administrative expenses
Impairment loss on investment portfolio
Income and profit for the year
Profit per share (note 11)
Basic
Diluted
See accompanying notes to financial statements.
2015
2014
$
34,005,435
34,005,435
$
30,691,450
30,691,450
2,873,993
9,350,610
829,574
870,000
13,924,177
$
2,586,438
7,759,154
805,745
30,000
11,181,337
$
$
20,081,258
$
19,510,113
$0.991
$0.970
$0.976
$0.965
2
24 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Comprehensive Income
Statements of Comprehensive Income
Years ended December 31, 2015 and 2014
(in Canadian dollars)
Income and profit for the year
Other comprehensive income:
2015
2014
$
20,081,258
$
19,510,113
Unrealized gain (loss) on marketable securities and debenture investments
(74,570)
72,966
Total comprehensive income for the period
$
20,006,688
$
19,583,079
See accompanying notes to financial statements.
3
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
25
Building Relationshipstoday and tomorrow
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Changes in Shareholder’s Equity
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Changes in Shareholders' Equity
Years ended December 31, 2015 and 2014
Years ended December 31, 2015 and 2014
(in Canadian dollars)
(in Canadian dollars)
Balance at January 1, 2015
Proceeds from issuance of shares in new offering
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Equity component of debentures issued during the year
Stock based compensation
Change in fair value of available for sale financial assets
Income and profit for the year
Dividends to shareholders
Balance at December 31, 2015
Shares issued and outstanding (note 10)
Balance at January 1, 2014
Proceeds from issuance of shares in new offering
Offering costs
Proceeds from issuance of shares from dividend reinvestment
Exercise of stock options
Forfeiture of stock options
Change in fair value of available for sale financial assets
Income and profit for the year
Dividends to shareholders
Balance at December 31, 2014
Shares issued and outstanding (note 10)
See accompanying notes to financial statements.
Common shares
207,378,123
980,000
(21,931)
884,595
-
-
-
-
-
209,220,787
20,313,943
Common shares
183,908,682
23,655,500
(1,186,242)
982,369
17,814
-
-
-
-
207,378,123
20,162,266
Equity
component
convertible
debentures
1,960,000
-
-
-
524,000
-
-
-
-
2,484,000
Equity
component
convertible
debentures
1,960,000
-
-
-
-
-
-
-
-
1,960,000
4
Stock options
Contributed
surplus
98,894
-
-
-
-
1,637
-
-
-
100,531
962
-
-
-
-
-
-
-
-
962
Accumulated
other
comprehensive
income (loss)
72,966
-
-
-
-
-
(74,570)
-
-
(1,604)
Shareholders'
equity
209,189,119
980,000
(21,931)
884,595
524,000
1,637
(74,570)
20,081,258
(20,081,258)
211,482,850
Deficit
(321,826)
-
-
-
-
-
-
20,081,258
(20,081,258)
(321,826)
Stock options
Contributed
surplus
100,000
-
-
-
(144)
(962)
-
-
-
98,894
-
-
-
-
962
-
-
-
962
Adjusted other
comprehensive
income
-
-
-
-
-
-
72,966
-
-
72,966
Deficit
(321,826)
-
-
-
-
-
-
19,510,113
(19,510,113)
(321,826)
Shareholders'
equity
185,646,856
23,655,500
(1,186,242)
982,369
17,670
-
72,966
19,510,113
(19,510,113)
209,189,119
26 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Cash Flows
Statements of Cash Flows
Years ended December 31, 2015 and 2014
(in Canadian dollars)
Cash provided by (used in):
Operating activities:
Income and profit for the year
Adjustments for:
Financing costs (net of implicit interest rate and accrued interest)
Implicit interest rate in excess of coupon rate - convertible debentures
Change in impairment loss on investment portfolio
Deferred finance cost amortization - convertible debentures
Share-based compensation
Net change in non-cash operating items:
Increase in accrued interest payable
Decrease (increase) in amounts receivable and prepaid expenses
Increase in accounts payable and accrued liabilities
Increase in unearned income
Net cash flow from operating activities
Financing activities:
Proceeds from issuance of shares in new offerings
Proceeds from issuance of shares from dividend reinvestment
Proceeds from exercise of stock options
Proceeds from convertible debentures issued
Debenture offering costs
Equity offering costs
Funding (repayment) of loans payable (net)
Funding of loan on debenture portfolio
Cash interest paid (note 14)
Dividends to shareholders paid during the period
Net cash flow from financing activities
Investing activities:
Net disposals (purchases) of marketable securities
Funding of debenture portfolio investment
Funding of investments portfolio
Discharging of investments portfolio
Net cash flow used in investing activities
Net decrease (increase) in bank indebtedness for the period
Bank indebtedness, beginning of year
Bank indebtedness, end of year
Cash flows from operating activities include:
Interest received
See accompanying notes to financial statements.
5
2015
2014
$
20,081,258
$
19,510,113
8,271,352
281,723
870,000
797,535
1,637
6,830,198
257,362
30,000
671,594
-
(279,261)
(2,262,524)
72,372
213,779
28,047,871
$
(56,803)
479,575
32,382
47,011
27,801,432
$
980,000
884,595
-
48,000,000
(2,398,005)
(21,931)
(14,754,435)
1,088,273
(7,992,091)
(19,637,678)
6,148,728
$
23,655,500
982,369
17,670
-
-
(1,186,242)
10,568,999
39,642
(6,773,395)
(19,535,817)
7,768,726
$
92,515
(1,283,477)
(344,618,478)
284,563,891
(61,245,549)
$
(2,148,790)
(81,742)
(310,684,587)
307,446,021
(5,469,098)
$
(27,048,950)
(14,664,178)
(41,713,128)
$
30,101,060
(44,765,238)
(14,664,178)
$
$
29,286,963
$
28,580,688
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
27
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
1. Organization of the Corporation:
Firm Capital Mortgage Investment Corporation (the "Corporation"), through its mortgage banker, Firm Capital
Corporation, is a non-bank lender providing primarily residential and commercial short-term bridge and
conventional real estate financing, including construction, mezzanine, and equity investments. The shares of
the Corporation are listed on the Toronto Stock Exchange under the symbol "FC". The Corporation is a
Canadian mortgage investment corporation and the registered office of the Corporation is 163 Cartwright
Avenue, Toronto, Ontario, M6A 1V5. FC Treasury Management Inc. is the Corporation's manager (the
"Corporation Manager"). The Corporation was incorporated pursuant to the laws of the Province of Ontario on
October 22, 2010.
2. Basis of presentation:
(a) Statement of compliance:
The financial statements of the Corporation have been prepared by management in accordance with
International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards
Board ("IASB"), and were approved by the Board of Directors on March 29, 2016.
(b) Basis of measurement:
The financial statements have been prepared on the historical cost basis, except for financial
instruments
classified as fair value through profit or loss ("FVTPL") or available for sale (through accumulated other
comprehensive income), which are measured at fair value.
(c) Functional and presentation currency:
These financial statements are presented in Canadian dollars, which is the Corporation's functional currency.
(d) Critical estimates and judgements:
The preparation of the financial statements requires management to make estimates that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the year. Actual results could differ
from those estimates.
In making estimates, management relies on external information and observable conditions where possible,
supplemented by internal analysis as required. Revisions to accounting estimates are recognized in the year in
which estimates are revised. Those estimates and judgements have been applied in a manner consistent with
previous years and there are no known trends, commitments, events or uncertainties that management
believes will materially affect the methodology or assumptions utilized in making those estimates and
judgements in these audited financial statements. The significant estimates and judgements used in
determining the recorded amount for assets and liabilities in the financial statements are as follows:
6
28 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
Investment impairment - The most significant estimates that the Corporation is required to make relate to the
impairment of the investments (notes 3(a) and 6). These estimates include assumptions regarding local real
estate market conditions, interest rates and the availability of credit, cost and terms of financing, the impact of
present or future legislation or regulation, prior encumbrances, adverse changes in the payment status of
borrowers, and other factors affecting the investments and underlying security of the investments. These
assumptions are limited by the availability of reliable comparable data, economic uncertainty, ongoing
geopolitical concerns, and the uncertainty of predictions concerning future events. Accordingly, by their nature,
estimates of impairment are subjective and do not necessarily result in precise determinations of the actual
outcome. Should the underlying assumptions change, the estimated fair value could vary by a material
amount.
Measurement of fair values - The Corporation's accounting policies and disclosures require the measurement
of fair values for both financial and non-financial assets and liabilities.
When measuring the fair value of an asset or liability, the Corporation uses market observable data where
possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in
the valuation techniques as follows:
Level 1:
Level 2:
Level 3:
Quoted prices (unadjusted) in active markets for identical assets or liabilities
Inputs other than quoted prices included within Level 1 that are observable for the
assets or liabilities, either directly (that is, as prices) or indirectly (that is, derived from
prices)
Inputs for the assets or liabilities that are not based on observable market data (that
is, unobservable inputs)
The Corporation reviews significant unobservable inputs and valuation adjustments.
If third party information,
such as broker quotes or appraisals are used to measure fair values, the Corporation will assess the evidence
obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS,
including the level in the fair value hierarchy in which such valuations should be classified.
The information about the assumptions made in measuring fair value is included in note 16.
3. Summary of significant accounting policies:
The Corporation's accounting policies and its standards of financial disclosure set out below are in accordance
with IFRS and have been applied consistently to all periods presented in these financial statements.
(a)
Investment portfolio:
The investment portfolio is classified as loans and receivables. Such investments are recognized initially at
cost plus any directly attributable transaction costs. Subsequent to initial recognition, the investment loans are
measured at amortized cost using the effective interest method, less any impairment provisions.
The investments are assessed at each reporting date to determine whether there is objective evidence of
impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after
the initial recognition of an asset, and that the loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
7
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
29
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
The Company assesses individually significant investments at each reporting date to determine whether there
is objective evidence of impairment. An impairment loss in respect of the investments measured at amortized
cost is calculated as the difference between its carrying amount and the amount of the future cash flows
estimated to be recovered on the loan security. Estimates and assumptions are made as to the gross sale
proceeds that would be generated on the forced sale of the real property securing the related mortgage loan,
and reflect estimates of the current local market conditions. Estimates are made as to the costs of enforcing
under the mortgage loan and of realizing on the real property. In particular, judgment by management is
required in the estimation of the amount and timing of future cash flows when determining the impairment loss.
These estimates are based on assumptions about a number of factors and actual results may differ, resulting in
future changes to the allowance. Losses are recognized in the statement of income and reflected in an
impairment provision against the investments. Interest on the impaired asset continues to be recognized to the
extent it is deemed to be collectible.
Investments that have been assessed individually and found not to be impaired and all individually insignificant
mortgages are then assessed collectively, in groups of mortgages with similar risk characteristics, to determine
whether a collective allowance should be recorded due to incurred loss events for which there is objective
evidence but whose effects are not yet evident. The collective assessment takes into account (i) data from the
investment portfolio (such as borrower financial position, loan defaults and arrears, loan to value ratios, etc.),
(ii) economic data (including current real estate prices for various real estate asset categories), and (iii) actual
historical loan losses. Modeling and projections based on historical loan losses have not been done given that
no actual
loan losses have been incurred. The impact of the assumed theoretical declines in real estate
values on the collective loan category is also considered. The conclusion of this assessment is that zero
collective allowance is required to be taken.
(b) Revenue recognition:
(i)
Interest and fee income:
received are amortized over the expected term of the investment.
Interest income is accounted for on the accrual basis. Commitment fees
(ii)
Non-conventional mortgages: Special profit and interest participations earned by the Corporation on
non-conventional mortgages are recognized and included in interest and fees earned only once the
receipt of such amounts is certain.
(c) Share-based compensation:
The Corporation has a share-based compensation plan (i.e. incentive option plan), which is described in note
10(b). The expense of equity-settled incentive option plans are measured based on fair value of the awards of
each tranche at the grant date. The expense is recognized on a proportionate basis consistent with the vesting
features of each tranche of the grant.
(d)
Income taxes:
The Corporation is a mortgage investment corporation ("MIC") pursuant to the Income Tax Act (Canada). As
such, the Corporation is entitled to deduct from its taxable income dividends paid to shareholders during the
year or within 90 days of the end of the year to the extent the dividends were not deducted previously. The
Corporation intends to maintain its status as a MIC and intends to distribute sufficient dividends in the year and
in future years to ensure that the Corporation is not subject to income taxes. Accordingly, for financial
statement reporting purposes, the tax deductibility of the Corporation's dividends results in the Corporation
being effectively exempt from taxation and no provision for current or future income taxes is required.
8
30 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
(e) Financial assets and liabilities:
Financial assets include the Corporation's amounts receivable and prepaid expenses, marketable securities,
debenture portfolio investment, and investment portfolio. Financial liabilities include bank indebtedness, loan
on debenture portfolio investment, accounts payable and accrued liabilities, shareholder dividend payable,
loans payable, and convertible debentures.
The Corporation classifies its financial assets into the following categories:
financial assets at fair value
through profit or loss ("FVTPL"), loans and receivables, and available for sale. Marketable securities and
debenture portfolio investments have been designated as available for sale.
reporting and
performance measurement of these investments are on a fair value basis and are based on prices as quoted in
Internal reporting and performance measurement of these investments are on a
an active public marketplace.
fair value basis. Amounts receivable and investment portfolio are classified as loans and receivables.
Internal
The Corporation classifies its financial liabilities into the other liabilities category.
Recognition and measurement of financial instruments:
The Corporation determines the classification of its financial assets and liabilities at initial recognition.
Financial instruments are recognized initially at fair value and, in the case of financial assets and liabilities,
carried at amortized cost, adjusted for directly attributable transaction costs. Financial assets classified as
available for sale are subsequently measured at fair value using the bid/ask price, with gains and losses
recognized in other comprehensive income. Financial assets classified as at FVTPL are subsequently
measured at fair value using the bid/ask price, with gains and losses recognized in profit or loss. Financial
instruments classified as loans and receivables or other liabilities are subsequently measured at amortized cost
less any costs of impairment.
(f) Derecognition of financial assets and liabilities:
(i) Financial assets:
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the
financial asset expires, or it transfers the rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the financial asset are transferred, or in which
the Corporation neither transfers nor retains substantially all the risks and rewards of ownership and it
does not retain control of the financial asset. Any interest in such transferred financial assets that qualify
for derecognition that is created or retained by the Corporation is recognized as a separate asset or
liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or
the carrying amount allocated to the portion of the asset transferred), and the sum of (a) the consideration
received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or
loss that had been recognized in other comprehensive income is recognized in profit or loss.
The Corporation enters into transactions whereby it transfers mortgage or loan investments recognized on
its statements of financial position, but retains either all or substantially all of the risks and rewards of the
transferred mortgage or loan investments.
If all or substantially all risks and rewards are retained, then the
transferred mortgage or loan investments are not derecognized.
In transactions in which the Corporation neither retains nor transfers substantially all the risks and rewards
of ownership of a financial asset and it retains control over the asset, the Corporation continues to
recognize the asset to the extent of its continuing involvement, determined by the extent to which it is
exposed to changes in the value of the transferred asset.
9
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
31
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
(ii) Financial liabilities:
The Corporation derecognizes a financial
cancelled or expires.
(g) Compound financial instruments:
liability when the obligation under the liability is discharged,
instruments issued by the Corporation comprise convertible debentures that can be
Compound financial
converted into shares of the Corporation at the option of the holder, and the number of shares to be issued
does not vary with changes in their fair value. The liability component of a compound financial instrument is
recognized initially at the fair value of a similar liability that does not have an equity conversion option. The
equity component is recognized initially as the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs
are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent
to the initial recognition, the liability component of a compound financial instrument is measured at amortized
cost using the effective interest method. The equity component of a compound financial instrument is not re-
measured subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability
are recognized in profit or loss. Distributions to the equity holders are recognized in equity.
(h) Share capital:
Common shares are classified as equity.
are recognized as a deduction from equity.
Incremental costs directly attributable to the issue of common shares
(i) Basic and diluted per share calculation:
The Corporation presents basic and diluted profit per share data for its common shares. Basic per share
amounts are calculated by dividing the profit and loss attributable to common shareholders of the Corporation
by the weighted average number of common shares outstanding during the year. Diluted per share amounts
are calculated using the "if converted method" and are determined by adjusting the profit or loss attributable to
common shareholders and the weighted average number of common shares outstanding, adjusted for the
effects of all dilutive potential convertible debentures and granted incentive option plan.
(j) Future changes in accounting policies:
(i)
IFRS 15, Revenue from Contracts with Customers ("IFRS 15"):
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. The new standard
provides a comprehensive framework for recognition, measurement, and disclosure of revenue from
contracts with customers, excluding contracts within the scope of the standard on leases, insurance
contracts, and financial instruments. The new standard is effective for annual periods beginning on or after
January 1, 2018. Earlier application is permitted on a retrospective basis. The Corporation intends to adopt
IFRS 15 in its financial statements for the annual period beginning on January 1, 2018. The extent of the
impact of adoption of the standard has not yet been determined.
10
32 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
(ii)
IFRS 9, Financial instruments ("IFRS 9"):
In July 2014, the IASB issued the complete IFRS 9, replacing IAS 39, Financial Instruments – Recognition
and Measurement. IFRS 9 introduces new requirements for classification and measurement, impairment,
and general hedging. The standard becomes effective for annual periods beginning on or after January 1,
2018 and is to be applied retrospectively. Early adoption is permitted. The Corporation intends to adopt
IFRS 9 in its financial statements for the annual period beginning on January 1, 2018. The extent of the
impact of adoption of the standard has not yet been determined.
(iii) Disclosure Initiative: Amendments to IAS 1 ("IAS 1"):
In December 2014, the IASB issued amendments to IAS 1, Presentation of Financial Statements as part
of its major initiative to improve presentation and disclosure in financial reports. These amendments will
not require any significant change
financial
statement disclosures. The amendments are effective for annual periods beginning on or after January 1,
2016. Early adoption is permitted. The Corporation intends to adopt these amendments in its financial
statements for the annual period beginning on January 1, 2016. The extent of the impact of adoption of the
standard has not yet been determined.
to current practice, but should
improved
facilitate
4. Amounts receivable and prepaid expenses:
The following is a breakdown of amounts receivable and prepaid expenses as at December 31, 2015 and
2014:
Interest receivable
Prepaid expenses
Fees receivable
Amounts receivable and prepaid expenses
2015
$
4,332,539
137,820
238,882
$
4,709,241
2014
$
2,189,982
98,551
158,184
$
2,446,717
5. Marketable securities and debenture portfolio investments:
The Corporation holds units in publicly traded real estate investment trusts and debentures of publicly traded
real estate investment trusts, which are classified as available for sale. The fair value of the units and
debentures is based on the closing price of the investments, which are actively traded in the marketplace and
any adjustments to fair value are reflected in the Statements of Comprehensive Income until the investments
are disposed of or impaired, at which time the Corporation would record the change in fair value in the
Statements of Income. The fair value of the units at December 31, 2015 is $1,949,106 (2014 - $2,221,756).
The fair value of the debentures at December 31, 2015 is $2,076,800 (2014 - $687,758). For the year ended
December 31, 2015, the Corporation recorded an unrealized loss of $74,570 (2014 - an unrealized gain of
$72,966) with a corresponding decrease in other comprehensive income.
11
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
33
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
6.
Investment portfolio:
The following is a breakdown of the investment portfolio as at December 31, 2015 and 2014:
2015
2014
Conventional first mortgages
Conventional non-first mortgages
Related investments
Discounted debt investments
Non-conventional mortgages
Total investments (at amortized cost)
$
283,869,955
41,799,212
59,422,966
5,022,775
12,804,730
402,919,638
$
70.45%
10.37%
14.75%
1.25%
3.18%
100.00%
$
249,021,514
30,551,339
48,313,224
4,903,900
10,075,074
342,865,051
$
72.63%
8.91%
14.09%
1.43%
2.94%
100.00%
Impairment provision
Investment portfolio
(4,230,000)
$
398,689,638
(3,360,000)
$
339,505,051
As at December 31, 2015, $8,866,920 (2014 - $29,325,589) of the mortgages within the conventional first
mortgage portfolio have first priority syndicate participations totalling $7,093,535 (2014 - $21,847,970)(recorded
on the Corporation's balance sheets as loans payable (see note 8)). The Corporation's net investment in these
mortgages is $1,773,385 (2014 - $7,477,619).
Conventional first mortgages are loans secured by a first priority mortgage charge with loan to values not
exceeding 75%. Conventional non-first mortgages are loans with mortgage charges not registered in first
priority with loan to values not exceeding 75%. Related investments are loans that may not necessarily be
secured by mortgage charge security. Discounted debt investments are loans purchased from arms-length
third parties at a discount to their face value. Non-conventional mortgages are loans that in some cases have
loan to values that exceed or may exceed 75% and are investments that are the source of all special profit
participation earned by the Corporation.
The investment portfolio is stated at amortized cost. The impairment provision in the amount of $4,230,000 as
at December 31, 2015 (2014 - $3,360,000) represents the total amount of management's estimate of the
shortfall between the investment principal balances and the estimated recoverable amount from the security
under the loans.
The loans comprising the investment portfolio bear interest at the weighted average rate of 8.19% per annum
(2014 - 8.29% per annum) and mature between 2016 and 2020.
The unadvanced funds under the existing investment portfolio (which are commitments of the Corporation)
amounted to $113,464,052 as at December 31, 2015 (December 31, 2014 - $83,646,839).
Principal repayments based on contractual maturity dates are as follows:
2016
2017
2018
2019
2020
12
34 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
$
262,638,131
109,034,327
30,629,582
450,000
167,598
402,919,638
$
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
Borrowers who have open loans have the option to repay principal at any time prior to the maturity date.
Priority mortgage participations:
The Corporation enters into participation arrangements with a bank with respect
to certain mortgage
investments from time to time, whereby such participant takes the senior position and the Corporation retains a
subordinated position. Under these certain agreements, the Corporation has retained a residual portion of the
credit and/or default risk as a result of holding the subordinated interest in the mortgage and has therefore not
met the derecognition criteria described in note 3(f).
The portion of such mortgage interests held by the bank participant is included in investment portfolio and
recorded as loans payable (note 8). Any gross interest and fees earned on the bank participants’ interests and
the related interest expense is recognized in income and profit.
As at December 31, 2015, the carrying value of the priority participants' interests in the Corporation's investment
portfolio and loans payable is $7,093,535 (December 31, 2014 - $21,847,970).
7. Bank indebtedness:
The Corporation has entered into credit arrangements of which $41,713,128 has been drawn as at December
31, 2015 (December 31, 2014 - $14,664,178). Interest on bank indebtedness is predominantly charged at a
formula rate that varies with bank prime and may have a component with a fixed interest rate established
based on a formula linked to bankers' acceptance rates. The credit arrangement comprises a revolving
operating facililty, a component of which is a demand facility and a component of which has a committed term
to September 30, 2016. Bank indebtedness is secured by a general security agreement. The credit agreement
contains certain financial covenants that must be maintained. As at December 31, 2015 and 2014, the
Corporation was in compliance with all financial covenants.
8.
Loans payable:
First priority charges on specific mortgage investments have been granted as security for the loans payable.
The loans mature on dates consistent with those of the underlying mortgages. The loans are on a non-
recourse basis and bear interest at a rate of 4.85% as at December 31, 2015 (2014 - 4.75% to 5.89%). The
Corporation's principal balance outstanding under the mortgages for which a first priority charge has been
granted is $8,866,920 as at December 31, 2015 (2014 - $29,325,589).
The loans are repayable at the earlier of the contractual expiry date of the underlying mortgage investment (and
the date the underlying mortgage is repaid.) Repayments based on contractual maturity dates are as follows:
2016
$
7,093,535
13
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
35
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
9. Convertible debentures:
Year Ended
Liability component, beginning of year
Issued
Implicit interest rate in excess of coupon rate
Deferred finance cost amortization
Liability component, end of year
$
2015
93,746,796
45,077,995
281,723
797,535
139,904,049
$
2014
92,817,840
-
257,362
671,594
93,746,796
$
$
The breakdown of the convertible debentures for the year ended December 31, 2015 presented in the above
table is as follows:
Convertible
debenture
5.75%
5.40%
5.25%
4.75%
5.30%
5.50%
Balance, beginning
of period
Issued
Implicit interest
rate in excess of
coupon rate
$
30,748,803
24,657,119
19,462,971
18,877,903
-
-
-
-
-
-
23,618,421
21,459,574
$
34,711
84,110
96,197
57,274
8,380
1,051
Deferred finance
cost amortization
$
211,441
173,458
134,549
152,143
121,369
4,575
$
Balance, end of
period
30,994,955
24,914,687
19,693,717
19,087,320
23,748,170
21,465,200
Maturity date
Oct 31, 2017
Feb 28, 2019
Mar 31, 2019
Mar 31, 2020
May 31, 2022
Dec 31, 2022
Total
$
93,746,796
$
45,077,995
$
281,723
$
797,535
$
139,904,049
The breakdown of the convertible debentures for the year ended December 31, 2014 is as follows:
Convertible
debenture
5.75%
5.40%
5.25%
4.75%
Total
Balance, beginning
of period
$
30,504,616
24,404,258
19,237,642
18,671,324
92,817,840
Issued
-
-
-
-
$
-
$
$
Deferred finance
cost amortization
$
211,444
173,458
134,549
152,143
671,594
$
$
Balance, end of
period
30,748,803
24,657,119
19,462,971
18,877,903
93,746,796
$
Maturity date
Oct 31, 2017
Feb 28, 2019
Mar 31, 2019
Mar 31, 2020
32,743
79,403
90,780
54,436
257,362
Implicit interest
rate in excess of
coupon rate
$
14
36 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
On April 17, 2015,
the Corporation completed a public offering of 25,000 5.30% convertible unsecured
subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000. The
debentures mature on May 31, 2022 and interest is paid semi-annually on May 31 and November 30. The
debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price
of $13.95. The debentures may not be redeemed by the Corporation prior to May 31, 2018. On or after May
31, 2018, but prior to May 31, 2019, the debentures are redeemable at a price equal to the principal, plus
accrued and unpaid interest, at the Corporation's option on not more than 60 days' and not less than 30 days'
notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for the
20 consecutive trading days ending 5 trading days preceding the date on which the notice of redemption is
given is not less than 125% of the conversion price. On or after May 31, 2019 and prior to the maturity date,
the debentures are redeemable at a price equal to the principal amount plus accrued and unpaid interest, at the
Corporation's option on not more than 60 days' and not less than 30 days' prior notice. On redemption or at
maturity, the Corporation may, at its option, on not more than 60 days' and not less than 40 days' prior notice,
elect to satisfy its obligation to pay all or a portion of the principal of the debenture by issuing that number of
shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted
average trading price of the shares for the 20 consecutive trading days ending on the fifth day preceding the
redemption or maturity date.
The convertible debentures were allocated into liability and equity components on the date of issuance as
follows:
Liability
Equity
Principal
$
$
24,842,000
158,000
25,000,000
On December 23, 2015, the Corporation completed a public offering of 23,000 5.50% convertible unsecured
subordinated debentures at a price of $1,000 per debenture for gross proceeds of $23,000,000. The
debentures mature on December 31, 2022 and interest is paid semi-annually on June 30 and December 31.
The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion
price of $14.00. The debentures may not be redeemed by the Corporation prior to December 31, 2018. On or
after December 31, 2018, but prior to December 31, 2019, the debentures are redeemable at a price equal to
the principal, plus accrued and unpaid interest, at the Corporation's option on not more than 60 days' and not
less than 30 days' notice, provided that the weighted average trading price of the shares on the Toronto Stock
Exchange for the 20 consecutive trading days ending 5 trading days preceding the date on which the notice of
redemption is given is not less than 125% of the conversion price. On or after December 31, 2019 and prior to
the maturity date, the debentures are redeemable at a price equal to the principal amount plus accrued and
unpaid interest, at the Corporation's option on not more than 60 days' and not less than 30 days' prior notice.
On redemption or at maturity, the Corporation may, at its option, on not more than 60 days' and not less than
40 days' prior notice, elect to satisfy its obligation to pay all or a portion of the principal of the debenture by
issuing that number of shares of the Corporation obtained by dividing the principal amount being repaid by 95%
of the weighted average trading price of the shares for the 20 consecutive trading days ending on the fifth day
preceding the redemption or maturity date.
15
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
37
Building Relationshipstoday and tomorrow
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
The convertible debentures were allocated into liability and equity components on the date of issuance as
follows:
Liability
Equity
Principal
$
$
22,634,000
366,000
23,000,000
As at December 31, 2015, debentures payable bear interest at the weighted average effective rate of 5.36%
(2014 - 5.35%) per annum. Notwithstanding the carrying value of the convertible debentures, the principal
balance outstanding to the debenture holders is $145,666,000 as at December 31, 2015 (2014 - $97,666,000).
10. Shareholders' equity:
The beneficial interest in the Corporation is represented by a single class of shares that are unlimited in
number. Each share carries a single vote at any meeting of shareholders and carries the right to participate pro
rata in any dividends.
(a) Shares issued and outstanding:
The following shares were issued and outstanding as at December 31, 2015:
Balance, beginning of year
New shares from equity offering
Equity offering costs
New shares issued during the year under Dividend Reinvestment Plan
Balance, end of year
The following shares were issued and outstanding as at December 31, 2014:
Balance, beginning of year
New shares from equity offering
Equity offering costs
Options exercised in the year
New shares issued during the year under Dividend Reinvestment Plan
Balance, end of year
# of shares
20,162,266
Amount
207,378,123
$
80,000
-
71,677
980,000
(21,931)
884,595
20,313,943
$
209,220,787
# of shares
18,126,021
Amount
183,908,682
$
1,955,000
23,655,500
-
(1,186,242)
1,500
79,745
17,814
982,369
20,162,266
$
207,378,123
In the first quarter of 2015, the Corporation completed a private placement of 80,000 shares at $12.25 per
share.
In the first quarter of 2014, the Corporation completed a public offering of 1,955,000 shares at $12.10
per share.
16
38 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
(b)
Incentive option plan:
During the fourth quarter of 2013, the Corporation granted 1,040,000 options at an exercise price of $11.78 per
share. These options fully vested upon granting.
During the second quarter of 2015, the Corporation granted 35,000 options at an exercise price of $12.21 per
share. These options fully vested upon granting.
As at December 31, 2015, of the 1,075,000 options granted, the total options excerised to date is 1,500 and the
total amount options forfeited to date is 10,000.
Total options outstanding as at December 31, 2015 are 1,063,500 (December 31, 2014 - 1,028,500).
(c) Dividend reinvestment plan and direct share purchase plan:
The Corporation has a dividend reinvestment plan and direct share purchase plan for its shareholders which
allows participants to reinvest their monthly cash dividends in additional shares of the Corporation at a share
price equivalent to the weighted average price of shares for the preceding five-day period.
11. Per share amounts:
Profit per share calculation:
The following tables reconciles the numerators and denominators of the basic and diluted profit per share for
the years ended December 31, 2015 and 2014.
Basic profit per share calculation:
Numerator for basic profit per share:
Net income and profit for the period:
Denominator for basic profit per share:
Weighted average shares
Basic profit per share
Diluted profit per share calculation:
Numerator for diluted profit per share:
Net income and profit for the period:
Interest on convertible debentures
Net profit for diluted profit per share
Denominator for diluted profit per share:
Weighted average shares
Net shares that would be issued:
Assuming the proceeds from options are used to
repurchase units at the average share price
Assuming debentures are converted
Diluted weighted average shares
2015
2014
$
20,081,258
$
19,510,113
20,253,665
$
0.991
19,995,523
$
0.976
2015
2014
$
20,081,258
5,208,722
$
25,289,980
$
19,510,113
4,100,084
$
23,610,197
20,253,665
19,995,523
52,264
5,755,708
26,061,637
34,199
4,443,534
24,473,256
Diluted profit per share
$
0.970
$
0.965
17
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
39
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
12. Dividends:
The Corporation intends to make dividend payments to the shareholders on a monthly basis on or about the
15th day of each month. The operating policies of the Corporation set out that the Corporation intends to
distribute to shareholders within 90 days after the year end at least 100% of the net income of the Corporation
determined in accordance with the Income Tax Act (Canada), subject to certain adjustments.
For the year ended December 31, 2015,
$19,510,113) to its shareholders. Dividends were $0.991 per share (2014 - $0.976 per share).
the Corporation recorded dividends of $20,081,258 (2014 -
13. Related party transactions and balances:
The Corporation's Manager (a company related to officers and/or directors of the Corporation) receives an
allocation of interest, referred to as the Corporation Manager spread interest, calculated at 0.75% per annum
of the Corporation's daily outstanding performing investment balances. For the year ended December 31,
2015, this amount was $2,873,993 (2014 - $2,586,438).
Included in accounts payable and accrued liabilities at
December 31, 2015 are amounts payable to the Corporation's Manager of $253,538 (2014 - $215,420).
The total directors' fee paid for the year was $183,000 (2014 - $171,625). This amount has been fully settled
during the year. The listing of the members of the Board of Directors is shown in the annual report. Key
management personnel are also directors of the Corporation and receive compensation from the Corporation
Manager. The Directors held 428,986 shares in the Corporation as at December 31, 2015 (2014 - 452,784).
During the year ended December 31, 2015, directors were awarded 35,000 (2014 - nil) options under the
incentive option plan.
the Corporation's investments; 75% of all of
The Mortgage Banker (a company related to officers and/or directors of the Corporation) receives certain fees
loan servicing fees equal to 0.10% per annum on the principal amount of each
from the borrowers as follows:
of
fees generated from the
Corporation's investments; and 25% of all of the special profit income generated from the non-conventional
investments after the Corporation has yielded a 10% per annum return on its investments.
Interest and fee
income of the Corporation is net of the loan servicing fees paid to the Mortgage Banker of approximately
$383,000 for the year ended December 31, 2015 (2014 - $345,000). The Mortgage Banker also retains all
overnight float interest and incidental fees and charges payable by borrowers on the Corporation's investments.
The Corporation's share of commitment and renewal fees is recorded in income and for the year ended
December 31, 2015 was $1,410,513 (2014 - $1,580,911) and applicable special profit income for the year
ended December 31, 2015 was $1,165,401 (2014 - $711,344).
the commitment and renewal
The Corporation's Management Agreement and Mortgage Banking Agreement contains provisions for the
payment of termination fees to the Corporation Manager and Mortgage Banker in the event that the respective
agreements are either terminated or not renewed.
Several of the Corporation's investments are shared with other investors of the Mortgage Banker, which may
include members of management of the Mortgage Banker and/or Officers or directors of the Corporation. The
Corporation ranks equally with other members of the syndicate as to receipt of principal and income.
A mortgage investment totalling $5,250,000 (December 31, 2014 - $5,250,000) was issued to a borrower
controlled by an independent director of the Corporation. The investment was made by way of a participation
in a direct loan to the entity controlled by the director. The investment is dealt with in accordance with the
Corporation's existing investment and operating policies and is personally guaranteed by the director.
18
40 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
A mortgage investment totalling $1,082,657 (December 31, 2014 - $1,456,581) was issued to a borrower
controlled by the same independent director set out above. The investment represents a participation in a first
mortgage loan assumed by an entity controlled by the director. The director became involved in the borrower
entity by virtue of his position as a second mortgage lender to the borrower that fell into default. During the
year, the Corporation recorded an additional $45,000 provision against this mortgage investment (2014 –
reduction in provision of $400,000) for a total allowance of $200,000 at December 31, 2015 (2014 - $155,000)
on this mortgage investment.
The Corporation also holds a mortgage investment totalling $4,303,000 at December 31, 2015 (classified as
Discounted debt investment) that originated from the purchase of a mortgage loan from a schedule 1 bank at a
discount to its original principal balance (December 31, 2014 - $3,978,000). The Corporation’s investment is by
way of a participation in a mortgage loan to the entity that took title to the real estate following the completion of
the enforcement foreclosure of the real estate that occurred after the purchase of the underlying Schedule 1
bank mortgage. The entity that holds title to the real estate as agent is related to the other participants in the
mortgage loan investment, including entities related to certain directors of the Corporation. An impairment
provision of $575,000 was recorded in the current year (2014 - $1,275,000) bringing the impairment allowance
recorded on this loan to $1,850,000 as at December 31, 2015 (December 31, 2014 - $1,275,000). Recoveries
under the investment resulting from the sale of the secured real estate will be treated in the same fashion as
that for all non-conventional mortgage investments held by the Corporation.
Key management compensation:
Aggregate compensation for key management personnel (including payments to related parties for their
recovery of overhead costs), all consisting of short-term employee compensation, was $1,892,130 in 2015
(2014 - $1,809,285), all of which was paid by the Corporation's Manager and nil by the Corporation.
14.
Interest expense:
Bank interest expense
Loans payable interest expense
Debenture interest expense
Interest expense
Deferred finance cost amortization - convertible debentures
Implicit interest rate in excess of coupon rate - convertible debentures
Change in accrued interest
2015
2014
$
$
1,166,770
920,995
7,262,845
9,350,610
(797,535)
(281,723)
(279,261)
804,398
802,513
6,152,243
7,759,154
(671,594)
(257,362)
(56,803)
$
$
Cash interest paid
$
7,992,091
$
6,773,395
15. Contingent liabilities:
The Corporation is involved in certain litigation arising out of the ordinary course of investing in loans. Although
such matters cannot be predicted with certainty, management believes the claims are without merit and does
impact on these financial
not consider the Corporation's exposure to such litigation to have a material
statements.
19
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
41
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
16. Fair value:
The fair values of amounts receivable and prepaid expenses, bank indebtedness, accounts payable and
accrued liabilities, and shareholder dividend payable approximate their carrying values due to their short-
term maturities.
The fair value of the investment portfolio approximates its carrying value as the majority of the loans are
repayable in full at any time without penalty and have floating interest rates. There is no quoted price in an active
market for the mortgage and loan investments or mortgage syndication liabilities. The Corporation makes its
determinations of fair value based or its assessment of the current lending market for mortgage and loan
investments of same or similar terms. As a result, the fair value of mortgage and loan investments is based on
Level 3 of the fair value hierarchy.
The fair values of loans payable approximate their carrying values due to the fact that the majority of the loans
are: (i) repayable in full, at any time, upon the borrower under the underlying loan that secures the loan
payable repaying their loan without penalty, and (ii) have floating interest rates linked to bank prime.
The fair value of convertible debentures, including their conversion option, has been determined based on the
closing price of the debentures of the Corporation on the Toronto Stock Exchange for the respective date.
The fair value of marketable securities has been determined based on the closing price of the security of the
respective listed entities on the Toronto Stock Exchange for the respective date.
The fair value of debenture portfolio investment has been determined based on the closing price of convertible
debenture securities of the respective listed entities on the Toronto Stock Exchange for the respective date.
The fair value of loans on the debenture portfolio approximates its carrying value due to the fact that it is fully
open for repayment and has a floating rate of interest.
The tables below present the fair values of the Corporation's financial instruments as at December 31, 2015
and 2014.
It does not include fair value information for financial assets and financial liabilities not measured at
fair value if the carrying amount is a reasonable approximation of fair value:
2015
Level 1
Level 2
Level 3
Total
Debenture portfolio investment
Marketable securities
Convertible debentures
$ 2,076,800
1,949,106
144,113,082
-
-
-
- $ 2,076,800
- 1,949,106
- 144,113,082
2014
Level 1
Level 2
Level 3
Total
Debenture portfolio investment
Marketable securities
Convertible debentures
$ 687,758
2,221,756
97,287,525
-
-
-
- $ 687,758
- 2,221,756
- 97,287,525
20
42 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
17. Risk management:
The Corporation is exposed to the symptoms and effects of global economic conditions and other factors that
could adversely affect its business, financial condition, and operating results. Many of these risk factors are
beyond the Corporation's direct control. The Corporation Manager and Board of Directors play an active role in
monitoring the Corporation's key risks and in determining the policies that are best suited to manage these
risks. There has been no change in the process since the previous year.
The Corporation's business activities, including its use of financial
various risks, the most significant of which are interest rate risk, credit and operational risks, and liquidity risk.
instruments, exposes the Corporation to
(a)
Interest rate risk:
Interest rate risk is the risk that fair value of future cash flows of financial assets or financial
fluctuate because of changes in market interest rates.
liabilities will
The Corporation's operations are subject to interest rate fluctuations. The interest rate on the majority of the
investments is set at the greater of a floor rate and a formula linked to bank prime. The floor interest rate
mitigates the effect of a drop in short-term market interest rates while the floating component linked to bank
prime allows for increased interest earnings where short-term market rates increase.
The Corporation's floating-rate debt comprises bank indebtedness, loan on debenture portfolio investment, and
with each bearing interest based on bank prime and/or based on short term bankers' acceptance interest rates
as a benchmark.
At December 31, 2015, if interest rates at that date had been 100 basis points lower or higher, with all other
variables held constant, comprehensive income and equity for the year would be affected as follows:
Financial assets:
Amounts receivable and prepaid expenses
Marketable securities
Debenture portfolio investment
Investment portfolio
Financial liabilities:
Bank indebtedness
Loan on debenture portfolio investment
Accounts payable and accrued liabilities
Shareholder dividend payable
Loans payable
Convertible debentures
Carrying Value
-1%
+1%
4,709,241
1,949,106
2,076,800
398,689,638
41,713,128
1,420,073
2,195,415
2,701,754
7,093,535
139,904,049
-
-
-
(10,827)
417,131
14,201
-
-
-
-
-
-
-
832,661
(417,131)
(14,201)
-
-
-
-
Total increase
$
420,505
$
401,329
21
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
43
Building Relationshipstoday and tomorrow FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
(b) Credit and operational risks:
Credit risk is the possibility that a borrower may be unable to honour its debt commitment as a result of a
negative change in market conditions that could result in a loss to the Corporation.
The Corporation invests primarily in Canadian markets. Any instability in the real estate sector and an adverse
change in economic conditions in Canada could result in declines in the value of real property securing the
Corporation's investments. The Corporation mitigates this risk by adhering to the investment and operating
policies set out in its Declaration of Corporation. The Corporation's maximum exposure to credit risk is
represented by the fair values of amounts receivable and the investment portfolio.
(c) Liquidity risk:
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting its financial obligations as they
become due.
The Corporation's liquidity requirements relate to its obligations under its bank indebtedness, loans payable,
convertible debentures, and its obligations to make future advances under its existing portfolio. Liquidity risk is
managed by ensuring that the sum of (i) availability under the Corporation's bank borrowing line, (ii) the
sourcing of other borrowing facilities, and (iii) projected repayments under the existing investment portfolio,
exceeds projected needs (including funding of further advances under existing and new investments).
As at December 31, 2015,
the Corporation had not utilized its full leverage availability, being a guideline of
60% of its first mortgage investments. Unadvanced committed funds under the existing investment portfolio
amounted to $113,464,052 as at December 31, 2015 (2014 - $83,646,839). These commitments are
anticipated to be funded from the Corporation's credit facility and borrower repayments. The Corporation has a
revolving line of credit with its principal banker to fund the timing differences between investment advances and
investment repayments. The bank borrowing line is a committed facility with a maturity date of September 30,
If the loan is not renewed on September 30, 2016, the terms of the facility allow for the Corporation to
2016.
repay the balance owed on September 30, 2016 within 12 months.
In the current economic climate and capital
market conditions, there are no assurances that the bank borrowing line will be renewed or that it could be
replaced with another lender if not renewed.
is not extended at maturity, repayments under the
Corporation's investment portfolio would be utilized to repay the bank indebtedness. There are limitations in
the availability of funds under the revolving line of credit. The Corporation's investments are predominantly
short-term in nature, and as such, the continual repayment by borrowers of existing investments creates
liquidity for ongoing investments and funding commitments. Loans payable relate to borrowings on specific
investments within the Corporation's portfolio and only have to be repaid once the specific loan is paid out by
the borrower.
If
it
If the Corporation is unable to continue to have access to its bank borrowing line and loans payable, the size
of the Corporation's investment portfolio will decrease and the income historically generated through holding a
larger portfolio by utilizing leverage will not be earned.
22
44 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
Contractual obligations as at December 31, 2015 are due as follows:
Bank indebtedness
Accounts payable and accrued liabilities
Loan on debenture portfolio investment
Shareholder dividend payable
Loans payable
Convertible debentures
Subtotal - Liabilities
Future advances under portfolio
Liabilities and contractual obligations
$
$
$
Total
1-3 years
4 - 6 years
41,713,128
2,195,415
1,420,073
2,701,754
7,093,535
145,666,000
200,789,905
Less than 1 year
41,713,128
-
$
-
2,195,415
-
1,420,073
-
2,701,754
-
7,093,535
114,223,000
-
114,223,000
55,123,905
$
-
113,464,052 113,464,052
$ 314,253,957 $ 168,587,957 $ 31,443,000 $ 114,223,000
-
-
-
-
-
31,443,000
31,443,000
-
$
$
$
The bank indebtedness and loans payable are liabilities resulting from the funding of
the Corporation's
the bank
investments. Repayment of
indebtedness and/or loans payable. The obligations for future advances under the Corporation's investment
portfolio are anticipated to be funded from the Corporation's credit facility and borrower repayments. Upon
funding of same, the funded amount forms part of the Corporation's investments.
investments results in a direct and corresponding pay down of
Interest payments on loans payable (assuming outstanding amounts and the bank prime interest rate remain
unchanged) would be $172,018 for less than 1 year and nil for 1 to 6 years.
Interest payments on debentures
(assuming the amounts remain unchanged) would be $7,813,287 for less than 1 year, $13,516,447 for 1 to 3
years and $9,444,090 for 4 to 6 years.
(d) Capital risk management:
The Corporation defines capital as being the funds raised through the issuance of publicly traded securities of
the Corporation. The Corporation's objectives when managing capital/equity are:
•
•
to safeguard the Corporation's ability to continue as a going concern, so that it can continue to provide
returns for shareholders, and
to provide an adequate return to shareholders by obtaining an appropriate amount of debt, commensurate
with the level of risk.
The Corporation manages the capital/equity structure and makes adjustments to it in light of changes in
economic conditions. In order to maintain or adjust the capital structure, the Corporation may issue new shares
or repay bank indebtedness (if any) and loans payable.
The Corporation's investment guidelines, which can be varied at the discretion of the Board of Directors,
incorporate various guidelines and investment operating policies. The Corporation's guidelines include the
following: the Corporation (i) will not invest more than 10% of the amount of its capital in any single
conventional first mortgage where the loan to value on such loan is less than 60%, (ii) will not invest more than
8% of the amount of its capital in any single conventional first mortgage where the loan to value on such loan is
between 60% and 70%, (iii) will not invest more than 5% of the amount of its capital in any single conventional
first mortgages where the loan to value on such loan exceeds 70%, (iv) will not invest more than 2.5% of the
amount of its capital in any single non-conventional mortgage or conventional investment that it is not a first
mortgage, and (v) will only borrow funds in order to acquire or invest in investments in amounts up to 60% of
the book value of the Corporation's portfolio of conventional first mortgages.
23
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
45
Building Relationshipstoday and tomorrow
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Notes to Financial Statements
Years ended December 31, 2015 and 2014
(in Canadian dollars)
The Corporation is required by its bank lender to maintain various covenants, including minimum equity
amount, interest coverage ratios, indebtedness as a percentage of the performing first mortgage portfolio size,
and indebtedness to total assets. The Corporation has complied with all such bank covenants.
All of the Corporation's operations and investments are denominated in Canadian dollars, resulting in no direct
foreign exchange risk.
18. Subsequent event:
During January 2016, a Director of the Corporation exercised 35,000 options at a price of $11.78 per common
shares for total gross proceeds of approximately $412,300.
24
46 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
Total Return Since IPO
Total Return Since IPO
An Attractive Investment
MORTGAGE INVESTMENT CORPORATION
$484
$567.28
0 %
1 . 1
1
+
$100
$100.00
1999
1999
2000
2000
2001
2001
2002
2002
Since Oct. 5th, 1999 till February 19th 2016
2006
2005
2007
2006
2008
2007
2009
2008
2010
2009
2011
2010
2012
2011
2013
2012
2014
2013
2015
2014
2003
2004
2005
2003
2004
An investment in Firm Capital since it’s initial public offering has generated an attractive return for investors . Since
(cid:36)(cid:81)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:87)(cid:182)(cid:86)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)(cid:86)(cid:17)(cid:3)
the IPO in 1999, a $100 investment in Firm Capital has appreciated to $567 .28 when factoring in full dividend
(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:51)(cid:50)(cid:3)(cid:76)(cid:81)(cid:3)(cid:20)(cid:28)(cid:28)(cid:28)(cid:15)(cid:3)(cid:68)(cid:3)(cid:7)(cid:20)(cid:19)(cid:19)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:72)(cid:70)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)567.28(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:3)
reinvestment over the same period . The compounded annual growth rate or “CAGR” in Firm Capital Mortgage
(cid:71)(cid:76)(cid:89)(cid:76)d(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:179)(cid:38)(cid:36)(cid:42)(cid:53)(cid:180)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:85)(cid:80)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)
Investment Corporation shares, since 1999 has been in excess of 11 .17%
(cid:48)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:3) (cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:20)(cid:28)(cid:28)(cid:28)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:20)(cid:17)(cid:20)7(cid:8)(cid:17)
DIVIDEND REINVESTMENT PLAN
DIVIDEND REINVESTMENT PLAN
Shareholders are reminded that they can participate in the Corporations Dividend Reinvestment Plan and Share
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:76)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)
Purchase Plan . The plan allows participants to have their monthly dividend reinvested in additional shares .
(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:79)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:17)(cid:3)
SHARE PURCHASE PLAN
SHARE PURCHASE PLAN
(cid:50)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:15)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:15)
Once registered with the plan . participants have the right to purchase from the Corporation additional Shares,
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:7)(cid:20)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:7)(cid:21)(cid:24)(cid:19)(cid:17)(cid:19)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:17) P(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:76)(cid:83)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)Shareholders (cid:83)(cid:68)(cid:92)
totaling no greater than $12,000 per year and no less than $250 .00 per month . Participating Shareholders pay
(cid:81)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:17)
no commission .
For further information, including answers to frequently asked questions about the program, please refer to
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our website: www.firmcapital.com. To enroll, please contact your investment advisor or, if you are registered
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Shareholder, complete the Authorization Form located on our website and forward to our Transfer Agent,
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Computershare Trust Company of Canada, at the address noted on the website . You can also contact Investor
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Relations at the Corporation by calling 416-635-0221, who will assist you in enrolling in the program .
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Building Relationships today and tomorrow
Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
47
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Building Relationshipstoday and tomorrow NOTES
NOTES
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48 Firm Capital Mortgage Investment Corporation ● 2015 ● Annual Report
MORTGAGE INVESTMENT CORPORATION
(1)
(1)
(1)
Hon . Joe Oliver, P .C . (1)(3)
, F.DB.F
NOTES
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MORTGAGE INVESTMENT CORPORATION
REAL ESTATE FINANCING SOLUTIONS
Mortgage Banker Sample Transactions:
Bridge Loan
$25,000,000
Construction Loan
$20,367,400
Construction Loan
$12,500,000
Second Mortgage
First Mortgage
First Mortgage
12.09 acre
development site
TORONTO, ON
73 condo units
72 unit low-rise
residential rental project
MISSISSAUGA, ON
EDMONTON, AB
Construction Loan
$6,800,000
First Mortgage
52,530 sq. ft. industrial/
commercial building
OTTAWA, ON
Construction Loan
$3,315,000
First Mortgage
3-storey, 18 unit
condominium building
OTTAWA, ON
Land Loan
$8,000,000
First Mortgage
4.557 acre development
with 463,462 sq. ft. GFA
RICHMOND HILL, ON
Mezzanine Loan
$3,335,000
Second Mortgage
Acquisition of
38 single family lots
TORONTO, ON
Bridge Loan
$3,500,000
Second Mortgage
Cap Ex program for
256 apartment units
WINNIPEG, MB
Land Loan
$3,800,000
Infill Construction Loan
$1,300,000
Land & Servicing Loan
$12,812,500
Land & Construction Loan
$2,525,000
First Mortgage
Second Mortgage
First Mortgage
0.66 acre development for a
condominium building
TORONTO, ON
4,019 sq. ft.
custom home
TORONTO, ON
114 acre development site
and 88 residential lots
SASKATOON, SK
First Mortgage
4,533 sq. ft. luxury
custom home
TORONTO, ON
BOUTIQUE MORTGAGE LENDERS
® PROVIDING REAL ESTATE CAPITAL FOR:
• Bridge Financing
• Mezzanine Financing
• Land & Construction Financing
• Distressed Debt
• Landlords / Developers / Builders
• Special Situations
•
Investment Property Financing
• Real Estate Private Equity / Equity Capital
• REITs / Capital Markets
• Private & Public Market Investments
Building Relationships | since 1988
A Non-Bank Lender Providing Construction, Bridge,
Equity and Conventional Real Estate Financing
T: 416.635.0221 • F: 416.635.1713 • www.FirmCapital.com
Ontario Mortgage Brokerages, Lenders and Administrators Act LIC. #10164, Administrators LIC. #11442
Annual Report Cover_2016.indd 5
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